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HISTORY   OF   ECONOMIC   THOUGHT 


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TORONTO 


HISTORY 

OF 


A    CRITICAL    ACCOUNT    OF    THE    ORIGIN    AND 

DEVELOPMENT  OF  THE  ECONOMIC  THEORIES 

OF  THE   LEADING  THINKERS   IN  THE 

LEADING    NATIONS 


BY 
tvV^ 

LEWIS   H^HANEY,  PH.D. 

ASSOCIATE  PROFESSOR  AND   CHAIRMAN   OF  THE   SCHOOL  OF 

ECONOMICS   OF   THE   UNIVERSITY  OF  TEXAS 
AUTHOR  OF  "  A  CONGRESSIONAL  HISTORY  OF  RAILWAYS" 


THE    MACMILLAN   COMPANY 

1913 

All  rights  reserved 


H675 
»S 


COPYRIGHT,  1911, 
BY  THE  MACMILLAN  COMPANY. 


Set  up  and  electrotyped.     Published  June,  19x1.    Reprinted 
April,  1913  ;  July,  1913- 


NorfaooB 

J.  8.  Gushing  Co.  —  Berwick  <fe  Smith  Co. 
Norwood,  Mass.,  U.S.A. 


PREFACE 

IT  is  the  aim  of  this  book  to  present  a  critical  account  of  the 
whole  development  of  economic  thought  in  the  leading  nations 
of  the  Occidental  world ;  and,  while  keeping  the  purely  eco- 
nomic viewpoint,  to  indicate  some  of  the  most  important  rela- 
tions of  economic  thought  with  philosophy  and  environmental 
conditions.  As  it  is  designed  to  serve  as  a  text-book  for  the 
growing  number  of  advanced  students  who  study  the  history 
of  Economics,  every  effort  has  been  made  to  give  a  fair  and 
well-rounded  account  of  the  thought  of  the  leading  writers, 
avoiding  the  emphasis  of  some  newly  discovered  point  or  inter- 
esting but  obscure  writer  which  would  characterize  a  mono- 
graph. 

Doubtless  there  will  be  some  difference  of  opinion  over  the 
relative  space  here  devoted  to  the  different  economists,  and 
some  cases  of  omission  or  bare  mention  will  be  criticized. 
It  should  therefore  be  stated  that  a  twofold  test  has  been  the 
basis  of  selection  in  this  regard :  first,  what  has  been  the  writer's 
effect  upon  the  stream  of  economic  thought  ?  next,  what  impor- 
tant point  in  theory  has  he  originated  or  developed?  If  his 
contribution  has  been  both  discovery  in  theory  and  a  profound 
effect  on  his  contemporaries,  then  he  deserves  considerable 
discussion.  These  two  phases  of  importance  do  not  necessarily 
go  together,  as  the  experience  of  Lloyd,  Gossen,  and  others 
bears  witness. 

In  covering  so  vast  a  field  it  has  seemed  desirable  to  stand- 
ardize the  method  of  treatment  to  some  extent.  Accordingly, 
the  general  plan  of  procedure  in  dealing  with  an  individual 
economist  has  been  first  to  indicate  briefly  the  pertinent  cir- 
cumstances of  his  environment,  both  objective  and  subjective ; 
then  to  discuss  his  economic  thought  under  the  heads  of  value 
theory,  and  the  shares  in  distribution ;  concluding  with  a  state- 


vi  PREFACE 

ment  of  his  logical  method  and  philosophy.  But  this  procedure 
has  not  been  rigidly  adhered  to,  omissions  being  made  in  the 
case  of  the  less  important  writers  and  additional  points  devel- 
oped in  other  cases.  Any  noteworthy  point  which  is  associated 
with  an  economist's  name  has  generally  received  attention. 
In  a  word,  value  and  distribution  have  been  emphasized,  but 
are  far  from  being  the  only  topics  treated. 

Some  may  be  inclined  to  criticize  the  relative  space  given 
to  Socialism.  It  has  been  common  for  French  writers  to  devote 
a  much  larger  share  of  their  attention  to  this  subject,  while 
our  most  available  English  work,  Ingram's  History  of  Political 
Economy,  leaves  it  virtually  undiscussed.  The  writer  has  taken 
a  middle  ground,  merely  presenting  a  short  sketch  of  the  chief 
socialistic  criticisms  of  the  classical  English  economic  thought. 
More  comprehensive  accounts  of  the  development  of  Socialism 
are  readily  available  in  English. 

Finally,  it  will  be  observed  that  after  Adam  Smith  the  chrono- 
logical development  of  the  subject  has  been  sacrificed  to  some 
extent  for  the  sake  of  a  more  topical  arrangement.  It  is 
believed  that  the  analysis  followed  will  lend  far  more  to  the 
interest  and  intelligibility  of  the  history  than  would  be  required 
to  offset  this  sacrifice. 

It  is  perfectly  obvious  that  no  writer  of  a  book  of  this  kind 
can  have  read  carefully  and  completely  all  the  works  he  men- 
tions. Life  is  too  short.  Moreover,  so  to  read  would  be  a 
waste  of  time,  even  if  life  were  longer.  It  would  take  years 
to  read  all  the  works  of  all  the  minor  French  and  German 
authors  referred  to  in  the  period  1800-1850,  and  would  be  folly 
at  the  same  time.  Works  of  this  kind  can  sometimes  be 
"  sampled."  Traditional  views,  too,  may  often  be  tested  in  the 
same  way.  The  writer  has  endeavored  to  form  independent 
judgments  in  every  case,  and  where  traditional  views  are  pre- 
sented it  is  because  they  are  believed  to  be  correct.  He  has 
been  far  from  opposing  a  view  simply  because  others  have  held 
it.  In  the  case  of  the  major  writers,  what  is  essential  has  been 
read,  and  some  of  the  important  books  have  been  gone  over 
again  and  again.  The  essential  part  of  the  views  here  pre- 
sented is  based  upon  independent  study.  Where  mistakes  are 


PREFACE  vii 

discovered  they  will  be  corrected  in  future  editions,  and  the 
author  will  appreciate  the  kindness  of  readers  who  will  call 
his  attention  to  errors.  He  realizes  that,  especially  in  the  treat- 
ment of  recent  thought,  the  range  is  so  close  that  accuracy 
and  just  perspective  are  very  difficult  of  attainment. 

In  making  recognition  of  the  aid  which  he  has  received, 
the  writer  wishes  first  of  all  to  make  clear  the  extent  of  his 
obligation  to  the  editor,  Professor  Richard  T.  Ely.  The  present 
work  falls  but  little  short  of  being  a  joint  product.  Indeed, 
it  is  only  the  magnanimity  of  Dr.  Ely  which  has  altered  the 
original  intention  to  publish  it  as  such.  Some  twenty-five  years 
ago,  when  teaching  at  Johns  Hopkins  University,  Professor  Ely 
prepared  a  history  of  economic  thought  for  publication ;  but 
he  withheld  it  for  further  work,  and  since  that  time  has  made 
numerous  additions.  Five  years  ago,  while  the  writer  was  an 
instructor  in  the  State  University  of  Iowa,  Professor  Ely  pro- 
posed to  him  that  he  take  this  old  and  incomplete  manuscript 
and  so  revise  it  that  it  might  be  published  under  their  joint 
authorship.  Meanwhile  the  writer  had  been  lecturing  on  the 
same  subject,  so  that  his  lecture  notes  were  combined  with 
parts  of  Dr.  Ely's  manuscript  to  make  the  present  work,  the 
composition  being  conducted  independently  by  him.  The 
various  chapters  were  submitted  to  Professor  Ely  from  time 
to  time,  and  he  made  suggestions  concerning  style  and  matter. 
Furthermore,  during  the  summer  of  1910,  Professor  Ely  went 
over  the  work  in  conference  with  the  writer,  and  the  discussions 
of  that  time  resulted  in  additions  and  improvements.  Both 
directly  and  indirectly,  therefore,  Professor  Ely's  part  has  been 
an  important  one.  The  chapters  on  Carey,  Bastiat,  and  List 
are  largely  his,  also  parts  of  the  one  on  Mill,  and  his  first-hand 
familiarity  with  the  German  Historical  School  has  enabled  him 
to  make  valuable  suggestions  on  that  subject.  At  a  few  points, 
no  doubt,  even  traces  of  his  language  may  remain.  Yet  upon 
Dr.  Ely's  suggestion  and  advice,  in  view  of  the  predominance 
of  independent  work  by  the  writer  in  matter,  composition,  and 
arrangement,  it  has  been  decided  to  publish  the  book  under 
the  latter's  single  name.  Accordingly,  the  writer  wishes  to 
express  here  his  deep  indebtedness  to  his  former  teacher  and 


Viii  PREFACE 

present  friend:  in  the  first  place,  for  stimulating  the  produc- 
tion of  this  work  as  he  has  so  many  others ;  secondly,  for  many 
direct  suggestions  as  to  style  and  emphasis ;  and,  finally,  for 
a  host  of  indirectly  acquired  ideas  and  stimuli  without  which 
the  book  would  lack  many  of  such  merits  as  it  may  now  possess. 
He  assumes  full  responsibility  for  the  weaknesses  and  errors, 
while  he  feels  that  an  unusually  large  degree  of  credit  is  due 
the  editor. 

The  writer  also  wishes  to  gratefully  acknowledge  the  receipt 
of  valuable  criticisms  from  the  following  economists :  F.  M. 
Taylor,  of  the  University  of  Michigan ;  F.  W.  Taussig  and 
T.  N.  Carver,  of  Harvard ;  I.  A.  Loos,  of  the  University  of  Iowa; 
C.  C.  Williamson,  of  Bryn  Mawr ;  L.  M.  Keasby,  of  the  Uni- 
versity of  Texas  ;  J.  H.  Hollander,  of  Johns  Hopkins ;  and 
David  Friday,  of  the  University  of  Michigan.  He  is  indebted 
to  these  friendly  critics  in  the  order  named,  his  thanks  being 
especially  due  to  Professor  F.  M.  Taylor,  who  read  several  of 
the  chapters  in  the  manuscript.  Professor  A.  H.  Lloyd,  of  the 
University  of  Michigan,  was  consulted  on  points  in  Philosophy, 
and  made  several  valuable  suggestions.  Without  the  efficient 
assistance  given  by  his  wife  in  reading  and  correcting  manu- 
script and  proof,  the  publication  of  the  book  at  this  time  would 

have  been  impossible. 

LEWIS   H.   HANEY. 

AUSTIN,  TEXAS, 
December,  1910. 


OUTLINE  OF  TABLE  OF  CONTENTS 

PAGE 

A.  GENERAL   INTRODUCTION I 

I.    NATURE  AND  IMPORTANCE  OF  THE  HISTORY  OF  ECONOMIC 

THOUGHT 3 

II.    ORIGIN  AND  TARDY  DEVELOPMENT  OF  ECONOMIC  THOUGHT  15 

B.  ECONOMIC  THOUGHT  BEFORE  THE  SCIENCE  OF  ECO- 

NOMICS        21 

I.    ECONOMIC  THOUGHT  OF  THE  ANCIENTS      ....  22 

II.  MEDIAEVAL  ECONOMIC  THOUGHT 67 

III.    THE  DAWN  OF  MODERN  ECONOMIC  THOUGHT:   MERCAN- 
TILISM AND  KAMERALISM 85 

C.  THE  EVOLUTION  OF  ECONOMICS  AS  A  SCIENCE          .  131 

I.  THE  FOUNDERS 132 

II.    THE  EARLIER  FOLLOWERS 190 

1.  Pessimistic  Tendencies 190 

2.  Optimistic  Tendencies  .......  237 

3.  Other  Expositors 262 

III.  OPPONENTS  AND  LEADING  CRITICS 291 

i.  The  Philosophical  and  Ethical  System          .        .        .  292 

IV.  THE  RESTATEMENT:    MILL 344 

V.  OPPONENTS  AND  LEADING  CRITICS  {Resumed}    .        .        .  375 

1.  The  Philosophical  and  Ethical  System  (Resumed)        .  377 

2.  The  Method 394 

3.  The  Logic 422 

VI.  ATTEMPTS  AT  RECONSTRUCTION 446 

1.  Earlier  Developments  of  the  Marginal-utility  Concept  .  448 

2.  The  Austrian  School 461 

D.  GENERAL   ACCOUNT    OF    RECENT    LEADING    SCHOOLS 

OF   ECONOMIC  THOUGHT 477 

I.    GERMANY  AND  ITALY 479 

II.  ENGLAND  AND  FRANCE ' .  494 

III.  THE  UNITED  STATES 511 

ix 


TABLE   OF   CONTENTS 

A.    GENERAL   INTRODUCTION 

PACK 

PREFACE         ...........          v— viii 

CHAPTER  I.    NATURE  AND  IMPORTANCE  OF  THE  HISTORY  OF   ECO- 
NOMIC THOUGHT 3-14 

Scope  of  the  Subject  —  Relation  to  Industrial  History  —  Reasons 
for  Studying  it  —  Underlying  Philosophies,  Materialism,  Idealism  — 
Method,  Inductive,  Deductive,  Statistical — Absolutism  in  Thought 
—  Comte's  Stages. 

CHAPTER  II.    THE  ORIGIN  AND  TARDY  DEVELOPMENT  OF  ECONOMIC 

THOUGHT 15-20 

Origin  in  Moral  Codes  —  Reasons  for  Tardy  Development ;  Sub- 
jective, Objective. 

B.    ECONOMIC   THOUGHT   BEFORE  THE  SCIENCE 
OF   ECONOMICS 

I.    ECONOMIC  THOUGHT  OF  THE  ANCIENTS 

CHAPTER  III.    ECONOMIC  THOUGHT  OF  THE  HEBREWS  AND  HINDUS        23-38 

Generalizations  concerning  Orientals  Limited  —  Reasons  for  the 
Chapter  —  Economic  Thought  found  in  Rules  of  Conduct,  Laws, 
etc.  —  Usury  —  Commercial  Regulations  and  Just  Price  —  Labor 
and  Caste  —  Agriculture  Favored  —  Seventh  and  Jubilee  Years  — 
Summary  Generalizations :  Simple  Social  Philosophy,  Religion  or 
Morals  Dominant,  Minute  Regulation,  Conflict  with  Economic 
Stimuli,  Fixity  and  Conservatism,  Concept  of  Society. 

CHAPTER  IV.     ECONOMIC  THOUGHT   OF   THE   ATHENIAN    PHILOSO- 
PHERS               .  39-53 

Origin  of  the  State;  First  Economic  Interpretation  of  History  — 
Division  of  Labor  —  The  Social  Viewpoint  Taken  —  Inheritance  — 
Population  —  Communism  —  Scope  and  Classification  of  Aristotle's 
Economic  Thought,  Oikonomik,  Chrematistik,  Natural  Uses  — 

xi 


xii  TABLE  OF  CONTENTS 

FACE 

Value  —  Money  and  Interest  —  Industry  and  the  Various  Occupa- 
tions —  Attitude  toward  Riches  —  Ethics  Dominant  —  Contrast  with 
Hebrews  and  Hindus. 

CHAPTER  V.    ROMAN  ECONOMIC  THOUGHT 54-66 

General  Characterization  —  Economic  Thought  of  the  Jurists; 
Natural  Law,  Private  Property  and  Contract,  Money  and  Interest 
— The  Philosophers;  Ethics,  Interest  —  Agriculture  the  only  Honor- 
able Industry — Quietism  —  Writers  on  Agriculture,  Lati  furufia, 
Slavery  —  Roman  Ideas  on  Value  —  Regulation  of  Industry  and 
Commerce  —  Influence  of  Roman  Thought  —  Division  of  Labor  — 
Appendix :  Quotations  from  Writers  on  Agriculture. 

II.   MEDIEVAL  ECONOMIC  THOUGHT 

CHAPTER  VI.    ECONOMIC  THOUGHT  OF  THE  MIDDLE  AGES         .        69-83 

The  Period  Defined  —  Germanic  Contributions  —  Christianity 
and  the  Church  —  Scholasticism  and  Canon  Law  —  Value  and  Just 
Price  —  Usury  —  Economic  Functions  of  the  State  —  Monasteries 
—  Economic  Thought  of  Medieval  Townsmen  —  General  Signifi- 
cance of  the  Period. 

III.    THE  DAWN  OF  MODERN  ECONOMIC  THOUGHT 

CHAPTER  VII.    MERCANTILISM 87-112 

Preliminary  Definition  of  Period  and  Doctrine  —  Economic  Con- 
ditions—  Policies  and  Theories :  Importance  of  "Treasure,"  Foreign 
Trade,  Balance  of  Trade  Idea  —  Means  of  Insuring  a  Favorable 
Balance  —  Practical  Applications  of  Policies  —  Economic  Theories : 
Value,  Interest,  Population,  Wages,  Rent,  Factors  of  Production, 
Productivity  of  Occupations,  Taxation  —  James  Steuart,  the  Last 
of  the  Mercantilists  —  Critical  Estimate  and  Summary. 

CHAPTER  VIII.    KAMERALISM 113-130 

Resume  of  Nature,  Scope,  and  Development  —  Some  Typical 
Kameralists:  Bechers,  Hornig,  Danes,  Justi  —  Significance  of  Re- 
galian  Rights  —  Kameralism  and  Mercantilism  ;  Summary. 

C.    THE  EVOLUTION   OF  ECONOMICS   AS  A 
SCIENCE 

I.    THE   FOUNDERS 

CHAPTER  IX.    THE  PHYSIOCRATS  AND  THE  REVOLUTION  IN  SOCIAL 

PHILOSOPHY I33~I57 


TABLE  OF  CONTENTS  xiii 

PAGE 

The  Forerunners  of  the  Physiocrats :  Boisguillebert,  Vauban,  Fene- 
Ion,  Cantillon  —  Forces  which  gave  Rise  to  Physiocracy  —  General 
Outline  of  the  Physiocratic  Doctrine :  Nature  Philosophy,  Produit 
Net  and  Surplus,  Wages  and  Interest,  Single  Tax,  Value,  Scheme  of 
Distribution,  the  Tableau  Economique  —  Chief  Physiocrats  and 
their  Writings — English  Followers  —  Opponents  —  Practical  Influ- 
ence —  Critical  Estimate  and  Summary. 

CHAPTER  X.    ADAM  SMITH,  HIS  IMMEDIATE  PREDECESSORS,  AND  THE 

REVOLUTION  IN  INDUSTRY 158-189 

Immediate  Predecessors :  Locke,  Berkeley,  Mandeville,  Hutche- 
son,  Hume,  Tucker,  Ferguson,  Harris  —  Life  and  Relations  with 
the  Physiocrats  —  The  Wealth  of  Nations  —  Labor  and  Division  of 
Labor  —  Value  —  Classes  of  Society  and  their  Interests  —  Wages 

—  Profits   and   Interest  —  Rent  —  Public    Finance  —  Government 
Interference;  Laisser  Faire  —  Philosophy  and  Method  —  Practical 
Influence  —  The    "  Manchester    School "  —  Critical    Estimate    of 
Wealth  of  Nations. 

II.    THE  EARLIER  FOLLOWERS 

1.  PESSIMISTIC  TENDENCIES 

CHAPTER  XI.    MALTHUS  AND  THE  THEORY  OF  POPULATION       .    191-211 

Life  and  Circumstances —  His  Forerunners  —  The  Essay  on  Popu- 
lation :  its  Origin  and  First  Edition  —  Malthusian  Principle  as  De- 
veloped in  Later  Editions  :  (i)  Tendencies  of  Population  and 
Subsistence;  (2)  Diminishing  Returns;  (3)  Checks  to  Population 

—  Social  Results :   the  Malthusian  Cycle  —  Other  Economic  Views 

—  Critical   Estimate   of  the   Malthusian   Doctrine  —  Biographical 
Note  on  Early  Controversies. 

CHAPTER  XII.    RICARDO  AND  THE  THEORY  OF  DISTRIBUTION,  ESPE- 
CIALLY THE  RENT  DOCTRINE 212-236 

Life  and  Circumstances;  Chief  Writings  —  The  Principles  of 
Political  Economy :  Value,  Distribution,  Rent,  Wages,  Profits  and 
Interest,  Ideas  on  Surplus  —  Philosophy  and  Method  —  Ricardo's 
Followers. 

2.  OPTIMISTIC  TENDENCIES 

CHAPTER  XIII.    CAREY  AND  THE  "AMERICAN  SCHOOL"      .        .    238-250 

Hamilton  —  Raymond  —  Carey's  Life  and  Writings  —  His  Theory 
of  Value  —  Rent  —  Theory  of  Population  —  Method  —  Inconsist- 
ency —  Followers  of  the  American  School. 


xiv  TABLE  OF  CONTENTS 

PACK 

CHAPTER  XIV.    BASTIAT  AND  THE  FRENCH  OPTIMISTS        .       .    251-261 

Life  and  Writings  —  Economic  Harmonies:  Value,  Interests  of 
Labor  and  Capital,  Land  Values,  Population,  Government  Interven- 
tion —  Bastiat  and  Carey  —  Criticism  —  Economic  Optimism. 

3.   OTHER  EXPOSITORS  OF  THE  ENGLISH  CLASSICAL 
POLITICAL  ECONOMY 

a.   In  England 
CHAPTER  XV.    SENIOR  AND  THE  ABSTINENCE  THEORY        .       .    263-269 

An  Outline  of  Political  Economy  —  The  Scope  of  Political 
Economy  —  Abstinence  and  Capital  Formation  —  Cost  vs.  Expense; 
Past  vs.  Present  Labor  —  Utility  and  Demand  —  Monopoly  Theory 
—  Theory  of  Wages  —  Increasing  Returns  —  Emphasis  of  the  Sub- 
jective —  Critical  Estimate. 


b.   Expositors  outside  of  England  : 

CHAPTER  XVI.    SAY,  RAU,  AND  OTHER  CHIEF  EXPOSITORS  IN  GER- 

MANY AND  FRANCE  .........    270-278 

Nebenius,  Thunen,  Rau,  and  Others  of  the  German  Group  — 
The  Services  of  this  Group  —  Say  :  Arrangement  of  the  Science, 
Theory  of  Markets,  Value  —  Cournot  —  Dunoyer. 

CHAPTER  XVII.    THUNEN  AND  THE  "ISOLATED  STATE"     .       .    279-293 

Method  and  Plan  of  Work  —  Rent  —  Price  and  Value  —  Wages 
and  Interest,  Marginal  Productivity  Theory  —  Tariff;  and  Miscel- 
laneous. 

III.    OPPONENTS  AND  LEADING  CRITICS 

i.   THE  PHILOSOPHICAL  AND  ETHICAL  SYSTEM 

a.   Individualistic  Critics 

CHAPTER   XVIII.     LAUDERDALE   AND    RAE:    THE   DEFINITION   OF 

WEALTH  .'      •'     ^.'      .'       .'       ......    295-301 

Lauderdale  —  Definitions  —  Public  Wealth  vs.  Private  Riches  — 
His  Influence  —  Rae  —  Individual  vs.  Social  Capital  —  Invention  — 
Government  Interference  —  Criticism  of  Smith's  Method  —  Summary. 

CHAPTER  XIX.    SISMONDI:    THE  EMPHASIS  OF  INCOME  AND  CON- 

SUMPTION        .        .        .""•''•       .....    302-312 

Life  and  Works  —  Economic  Thought  :  Scope  of  Economics  and 
Criteria  of  Progress,  Scheme  of  Distribution,  Overproduction  and 
Machinery,  Population,  Reforms  Advocated,  Exploitation  of  Labor 
and  Socialism  —  Method  —  Influence. 


TABLE  OF   CONTENTS  XV 

b.   Nationalist  Criticism 

PACK 

CHAPTER  XX.    MULLER,  LIST,  AND  CAREY:  THE  EARLY  NATIONAL- 
ISTS      3*3-329 

Miiller;  His  Views  on  Protection,  the  State,  Value,  Capital, 
Criticism  of  Smith  —  List;  His  Life,  the  National  System,  Criti- 
cism of  the  School,  Historical  Views,  Division  of  Labor,  Immaterial 
Capital,  His  own  Absolutism  —  Carey ;  His  Argument  for  Protec- 
tion —  Summary. 

c.   Socialistic  Criticism 

CHAPTER  XXI.    EARLY  NINETEENTH-CENTURY  SOCIALISM    .        .    330-343 

The  Utopian  or  Bourgeois  Socialists :  Saint-Simon  and  the 
Saint- Simonists,  The  Associationists,  Owen,  Fourier,  and  Thompson 

—  The  Transition  to  a  More  Realistic  and  Proletarian  Socialism  in 
France,  1840-1848:   Louis  Blanc,  Proudhon — Summary. 

IV.    THE    RESTATEMENT 

CHAPTER  XXII.    JOHN  STUART  MILL 345-374 

Life  and  Works —  The  Principles  of  Political  Economy  —  Value 

—  The  Shares  in  Distribution,  Rent,  Wages,  Profits  —  Consumption 
and  Production  —  International  Trade  —  Influence  of  Progress  on 
Distribution  —  The  "Social  Question"  —  Unearned   Increment  — 
Government  Interference  —  Philosophy  and  Method. 

V.    OPPONENTS  AND   LEADING   CRITICS  (Resumed} 
i.   THE  PHILOSOPHICAL  AND   ETHICAL  SYSTEM    (Resumed) 

CHAPTER  XXIII.     THE  FOUNDERS  OF  "SCIENTIFIC"  SOCIALISM  IN 

GERMANY 377-393 

State  Socialism:  Rodbertus;  Labor  Productivity,  Decreasing 
Wage  Share,  Rent,  Distributive  Justice,  Theory  of  Crises,  Remedies 
Proposed,  Criticism  of  Ricardo's  Rent  Theory  —  Lassalle ;  Scheme 
of  Reform,  Capitalism,  Conjuncture  —  International  Revolutionary 
Socialism  :  Marx;  Materialistic  Interpretation  of  History,  Capital 
and  Exploitation,  Surplus  Value  —  Criticism  —  Opportunist  or  Re- 
visionist Socialism  —  Influence  of  the  Socialists;  Primary,  Sec- 
ondary. 

a.   THE  METHOD 

CHAPTER  XXIV.    CONCRETE-HISTORICAL  CRITICISM  IN  ENGLAND     395-407 

Richard  Jones :  Abstract  Assumptions  Criticized,  Ricardian  Rent 
Theory,  Method  —  Walter  Bagehot:  Scope  and  Method  of  Eco- 
nomics, Criticism  of  the  Classical  Economics  —  Leslie :  Opposition 


XVI  TABLE  OF  CONTENTS 

to  Abstract,  a  priori  Methods,  Realism,  Class  Interests,  Anti- 
utilitarianism,  Negative  Character  of  his  Work  —  Ingram  —  Toyn- 
bee:  Relativity  of  the  Classical  Theory,  Optimism  —  Rogers  — 
Summary. 

CHAPTER  XXV.    THE  GERMAN  HISTORICAL  SCHOOL    .        .        .    408-421 

Environmental  Forces  and  Forerunners  —  The  Older  or  More 
Negative  Group:  Roscher,  Hildebrand,  and  Knies — Roscher's 
Program  —  Hegelianism  —  Hildebrand's  Criticism  —  Knies  on  Ab- 
solutism in  Theory,  Criticism  of  Roscher,  On  the  Nature  of  Economic 
Laws  —  The  Younger  or  More  Positive  Group:  Schmoller  —  The 
Vereinfur  Sozial  Politik  —  BOcher  —  Schaffle  —  Summary  of  Tend- 
encies —  General  Summary  and  Critical  Estimate. 

3.    THE  LOGIC 

CHAPTER  XXVI.    LAUDERDALE  AND  HERMANN  :  EARLY  CRITICISM  ON 

THE  THEORY  OF  CAPITAL,  PROFITS,  AND  VALUE    .        .        .    424-437 

Lauderdale's  Criticism  of  the  Theory  of  Capital  and  Profits,  and 
his  Doctrines  of  Consumption  and  Value  —  The  Theories  of  Her- 
mann and  Other  German  Economists  on  Capital  and  Undertakers' 
Gains  —  Hermann's  Criticism  of  the  Current  Economics  —  Capital 

—  Rent    and  Wages  —  Undertakers'    Gains  —  German    Industrial 
Conditions — Hufeland,  Rau,  Hermann,  Mangoldt  —  Consumption 

—  Value  —  Conclusion. 

CHAPTER  XXVII.    THE  DOWNFALL  OF  THE  WAGES-FUND  THEORY    438-445 

Richard  Jones,  Longe,  Writer  in  North  British  Review,  Clifie 
Leslie,  Thornton,  Mill's  Recantation,  Walker,  Taussig. 

VI.    ATTEMPTS  AT  RECONSTRUCTION 

CHAPTER  XXVIII.      EARLIER    DEVELOPMENTS    OK   THE    MARGINAL 

UTILITY  CONCEPT:   LLOYD,  GOSSEN,  JEVONS,  AND  WALRAS  .    448-460 

First  Developments :  Condillac,  Bentham,  Craig,  Longfield,  Lloyd, 
Thomas,  Dupuit,  Senior  —  Gossen  —  Jevons :  Value  Theory,  Other 
Economic  Theory  —  Walras  —  Summary. 

CHAPTER  XXIX.     THE   AUSTRIAN   SCHOOL,   AND    ESPECIALLY   THE 

DEVELOPMENT  OF  SUBJECTIVE  VALUE  THEORIES    .        .        .    461-475 

The  Austrians  and  their  Value  Theory:  Menger;  Economic 
Causation,  Utility,  Classes  of  Goods,  Price  Limits —  Wieser;  Source 
of  Value,  Imputation  Theory,  the  Place  of  Cost  —  Bohm-Bawerk; 
Subjective  Value,  Subjective  Exchange  Value,  Objective  Value,  the 
Determination  of  Value,  Costs  —  Interest  Theories  —  The  Later 
Austrians  —  Critical  Estimate  and  Summary. 


TABLE  OF  CONTENTS  xvii 

D.    GENERAL  ACCOUNT  OF   RECENT 
LEADING   SCHOOLS 

PAGE 

CHAPTER  XXX.    RECENT    ECONOMIC   THOUGHT    IN    GERMANY   AND 

ITALY 479-493 

GERMANY  AND  AUSTRIA  :  Scope  and  Subdivision  of  Economics, 
Method,  Schools  of  Thought,  Value  Theory,  General  Characteristics 
—  ITALY:  Industrial  Backwardness,  Early  Leaders,  German  Influ- 
ence, The  Younger  Group,  Recent  Schools  and  Chief  Writers. 

CHAPTER  XXXI.     RECENT   ECONOMIC   THOUGHT  IN  ENGLAND   AND 

FRANCE    494-510 

ENGLAND  :  Decline  of  the  "  Classical "  Economics,  Cairnes  and 
Fawcett,  Revival  of  Academic  Economics,  Recent  Schools  and 
Chief  Writers  —  FRANCE  AND  BELGIUM  :  Dominance  of  "  Classical " 
Economics  and  Optimism,  German  Influence,  Historical  School, 
Monopoly  of  the  Academy  Broken,  Socialism,  Solidarite  —  Recent 
Schools  and  Writers. 

CHAPTER  XXXII.    RECENT    ECONOMIC   THOUGHT   IN   THE    UNITED 

STATES  AND  ITS  BACKGROUND 511-527 

The  Background  for  Characteristic  American  Doctrines  —  His- 
tory: to  1860,  Protection  and  Optimism;  1860-85,  "Classical" 
Economics,  Dogmatism;  1885,  New  Problems,  German  Influence, 
Marginal  Utility,  American  Economic  Association  —  Present  Condi- 
tions and  Economists. 

CHAPTER  XXXIII.    CONCLUSION 528-550 

General  Resume  —  Continuity  and  Environment  —  Some  Main 
Points  of  Difference  in  Economic  Thought :  Ethical  Dissent,  Op- 
timism and  Pessimism,  Various  Theories  of  Surplus,  Cost  vs.  Utility, 
Subjective  and  Objective  Viewpoints  —  The  Present  and  the  Future: 
Philosophy  and  Method,  Theory. 

BIBLIOGRAPHICAL  NOTE 55 1-556 

Chief  Bibliographical  Sources :  Leading  Works  on  the  History 
of  Economic  Thought 


A.     GENERAL    INTRODUCTION 


CHAPTER  I 

THE  NATURE  AND  IMPORTANCE  OF  THE  HISTORY  OF 
ECONOMIC  THOUGHT 

THERE  are  at  least  three  different  branches  of  study  whose 
names  contain  the  words  History  and  Economics.  There  is, 
on  the  one  hand,  Economic  History,  or  Industrial  History, 
as  it  is  frequently  called;  and  on  the  other,  there  are  the 
closely  related  subjects,  History  of  Economics  and  History  of 
Economic  Thought.  The  first  concerns  itself  with  the  history 
of  commerce,  manufactures,  and  other  economic  phenomena, 
dealing  objectively  with  the  ways  in  which  men  get  their  living ; 
the  second  and  third  treat  primarily  of  subjective  matters, 
dealing  for  the  most  part  with  the  ideas  men  have  concerning 
economic  facts  and  forces. 

Now  these  last  two  have  been  confused,  and  their  logical 
relationship  is  commonly  overlooked.  The  history  of  econom- 
ics deals  with  a  science  —  with  a  body  of  classified  knowledge ; 
it  is  limited  to  times  in  which  economic  ideas  have  become  dis- 
tinct, unified,  and  organized;  it  is  a  history  of  systems  of  eco- 
nomic thought.  But  the  Babylonians  had  ideas  concerning 
interest  and  mortgages;  the  Phoenicians  thought  about  com- 
merce and  bills  of  exchange;  the  Greeks  wrote  on  the  subject 
of  division  of  labor.  Does  the  history  of  economics,  then, 
date  to  such  remote  times?  By  no  means.  But  the  history 
of  economic  thought  does,  and  from  its  point  of  view  the  un- 
related primitive  ideas  of  the  earliest  times  are  full  of  meaning. 
Indeed,  to  understand  fully  the  origin  and  growth  of  the  science, 
the  underlying  ideas  are  important.  The  history  of  economic 

3 


4  ECONOMIC  THOUGHT 

thought  is  broader  than  the  history  of  the  science,  and  may 
properly  be  divided  into  two  parts,  one  taking  up  the  origin 
and  development  of  economic  ideas  prior  to  the  existence  of 
any  distinct  and  separate  science;  the  other  beginning  with 
the  rise  of  Political  Economy,  or  the  science  of  Economics. 
The  point  of  view  taken  in  the  following  pages  is  to  be  the 
broader  one.  The  subject,  the  History  of  Economic  Thought, 
may  be  defined  as  a  critical  account  of  the  development  of 
economic  ideas,  searching  into  their  origins,  interrelations,  and, 
in  some  cases,  their  results. 

The  close  relationship  between  economic  history  and  the  his- 
tory of  economic  thought  is  at  once  to  be  emphasized.  That 
men's  thoughts  depend  largely  upon  their  surroundings,  no  one 
doubts.  And  so  it  is  that  economic  ideas,  to  say  nothing  of 
systems  of  economics,  are  colored  and  limited  —  determined, 
sometimes  —  by  industrial  environment.  Thus  the  agricul- 
tural South  believes  in  free  trade;  as  manufactures  develop, 
that  belief  weakens.  But  this  interaction  is  reciprocal;  for 
opinions  and  theories  once  formed  are  tenaciously  adhered  to, 
and  may  become  a  determining  element  in  their  turn.  The 
individualism  of  the  laisser-faire  economists  and  statesmen  was 
to  a  great  extent  the  result  of  industrial  evolution;  but  in  its 
turn  it  became  a  condition  reacting  upon  industry.1  The  his- 
tory of  economic  thought,  then,  is  an  essential  part  of  general 
history,  both  explaining  it  and  being  explained  by  it. 

To-day  it  is  not  so  necessary  to  defend  the  study  of  the  His- 
tory of  Economic  Thought  as  it  once  was.  Even  now,  however, 
there  are  those  who  deny  the  usefulness  of  studying  earlier 
economic  thought.  And  in  any  case  it  will  be  of  value  to  state 
clearly  the  advantages  to  be  expected  from  such  a  study  as 
the  present ;  for  the  statement  may  make  one's  reading  more 
purposeful  and  suggest  new  points  of  view. 

1  Through  William  Pitt  and  Robert  Peel,  for  example,  and  the  economists  of 
the  dominant  French  school.  The  former  were  active  in  applying  the  laisser-* 
faire  doctrine  to  the  corn  laws ;  the  latter  did  much  during  the  nineteenth 
century,  both  as  government  officials  and  writers,  to  bring  into  practice  their 
optimistic,  let-alone  theories. 


THE  HISTORY  OF  ECONOMIC  THOUGHT  5 

First  of  all,  a  certain  unity  in  economic  thought  is  to  be 
emphasized,  a  unity  which  connects  us  with  ancient  times. 
Continuity  in  evolution  has  been  denied,1  but  such  continuity 
can  be  demonstrated.  Much  of  the  difficulty  comes  about 
through  an  exaggeration  of  the  negative  aspect  of  the  Middle 
Ages.  But  so  to  regard  it  is  to  misinterpret  the  period,  for  the 
medieval  aloofness  or  quietism  implied  a  positive  philosophy 
which  has  counted  in  the  history  of  thought  in  a  positive  way. 
Nor  was  this  period  a  complete  break;  in  it  were  nourished 
Greek  ideas  concerning  money  and  interest,  communism,  and 
other  economic  matters,  —  not  to  mention  "  nature  philoso- 
phy," —  which  were  handed  down  to  modern  thinkers.  The 
doctrines  of  the  first  economists  concerning  the  importance  of 
land  and  the  beneficent  law  of  nature  were  drawn  through  a 
continuous  line  of  thinkers  from  Plato  and  Aristotle.  As  will 
appear  further  on,  moreover,  not  only  do  Oriental  ideas  in- 
herited from  a  still  more  remote  past  come  down  to  us  through 
Greece,  but  through  Christianity  they  have  exerted  a  con- 
tinuous though  changing  effect  upon  the  economic  thoughts  of 
men.  It  is  logical,  then,  to  begin  a  history  like  the  present 
with  some  account  of  ancient  thought. 

Again,  there  is  great  value  in  understanding  the  origin  of  a 
science,  especially  one  like  economics,  whose  scope  and  nature 
have  been  under  dispute.  For  one  thing,  it  gives  a  truer  concept 
of  the  relationship  among  sciences,  an  important  matter  for  the 
thinker  looking  toward  the  proper  application  of  economic  prin- 
ciples. Through  a  study  of  the  History  of  Economic  Thought 
may  be  gained  a  clear  realization  of  the  position  of  Economics 
as  a  distinct  member  of  a  group  of  social  sciences:  Ethics, 
Jurisprudence,  Philosophy,  Sociology,  etc.  While  it  is  properly 
concerned  with  man's  efforts  to  get  a  living  in  association  with 
his  fellows,  as  a  social  science  it  is  related  to  other  sciences  which 
deal  with  human  wants  or  affect  the  way  men  get  their  living. 
To  illustrate  one  such  relationship,  it  may  be  observed  that 
to  the  extent  that  what  is  uneconomical  becomes,  on  that 
account,  "wrong,"  Economics  is  directly  related  to  Ethics. 
1  E.g.,  A.  Oncken,  Geschichte  der  National  Okonomie,  pp.  15  f. 


6  ECONOMIC  THOUGHT 

Economists,  as  practical  men,  must  realize  that  the  economic 
sanction  cooperates  or  conflicts  with  the  sanctions  of  other  social 
sciences,  a  fact  which  limits  its  application.  There  is,  therefore, 
no  better  way  for  a  student  grounded  in  economics  to  find  him- 
self in  the  wider  field  of  social  science  than  to  study  the  history  of 
economic  thought.  For  in  the  beginning  social  sciences  were  one. 
Purely  economic  ideas  may  be  apparent  to  us,  but  in  earlier  times, 
the  men  who  had  them  did  not  differentiate.  Such  having  been 
the  broad  beginning,  one  may  wonder  if  some  cycle  may  not  be 
completed  when  a  scientific  synthesis  will  again  bring  together 
feelings,  desires,  property,  family,  state,  justice,  law,  happiness, 
and  other  concepts  on  a  rationally  unified  basis  of  valuation. 

Then,  there  is  the  value  of  a  broad  basis  for  comparison  which 
such  a  study  brings.  Standing  at  the  highest  point  yet  reached, 
after  centuries  of  economic  thought,  and  looking  back  over  the 
path  of  truth,  strewn  with  fallacies  and  truisms  though  it  be, 
the  student  feels  his  judgment  broadened,  and  a  well-balanced 
and  reasonable  conservatism  may  fill  his  mind.  He  is  not  so 
apt  to  be  swept  off  his  feet  by  fads,  nor  to  be  made  confused  and 
hopeless  when  controversies  rage  around  him ;  for  he  knows  that 
fads  and  controversies  have  come  and  gone,  while  a  substantial 
body  of  economic  truth  has  been  so  established  that  progress 
must  come,  not  through  revolution,  but  through  evolution. 

The  concept  of  relativity,  the  point  of  view  according  to  which 
ideas  are  not  judged  with  dogmatic  absolutism,  but  are  critically 
examined  in  the  light  of  the  times  and  places  in  which  they  were 
formed,  becomes  very  real.  Before  we  can  call  medieval  thinkers 
blockheads  on  the  ground  that  they  condemned  interest-taking, 
we  must  examine  their  premises  and  the  circumstances  of  those 
premises.  Men  being  in  part  creatures  of  their  environment, 
their  thought  is  often  guided  and  limited  by  the  changing  phe- 
nomena with  which  they  are  confronted. 

Back  of  the  different  systems  of  economic  thought,  there  lie 
more  fundamental  factors  which  condition  them  and  determine 
their  nature  and  form.  The  more  immediate  of  these  factors 
are  (I)  the  underlying  philosophy  and  (II)  the  method  of  the 
thinker,  through  both  of  which  the  economic  life  works.  The 


THE  mSTORY  OF  ECONOMIC  THOUGHT       7 

philosophy  and  the  method  form  part  of  a  premise  of  the  syllo- 
gism, as  it  were.  One  economist  reaches  one  conclusion,  another 
a  different  one.  We  say  their  points  of  view  were  different.  But 
each  point  of  view  is  made  up  of  a  certain  basal  philosophy  of  life 
and  a  closely  allied  tendency  to  a  certain  methodology  in  thought. 
Not  the  least  service  of  a  history  of  economic  thought  is  the 
light  it  throws  upon  this  question  of  viewpoint,  and  it  is  desirable 
here  to  sketch  the  historical  outlines  of  philosophy  and  method 
as  a  background  for  the  more  detailed  history  of  strictly  economic 
thought  which  is  to  follow. 

I.  Philosophy.  —  Since  the  fifth  century  before  Christ,  two 
great  philosophies  have  ever  opposed  and  reacted  upon  one  an- 
other: Idealism  and  Materialism.1  Idealists  generally  have 
regarded  man  not  as  a  mere  creature  of  natural  environment, 
but  as  a  more  or  less  independent  force,  capable  of  molding  na- 
ture. These  men  have  upheld  social  activity  and  institutions 
(societism)  against  individualistic  tendencies,  opposing  society 
and  the  state  to  egoism.  They  are  the  conservatives.  In  their 
ranks  may  be  placed  Plato  and  the  Stoics  of  antiquity ;  the  Neo- 
Platonists,  St.  Augustine,  Thomas  Aquinas,  and  Hugo  Grotius, 
in  the  Middle  Ages ;  and  the  German  philosophers,  Leibnitz, 
Kant,  Schelling,  Hegel,  and  the  Frenchman,  Comte,  of  modern 
tunes.  Such  thinkers  have  emphasized  morality  and  duty, 
opposing  the  good  to  the  "  natural."  Spiritual  and  abstract 
considerations .  have  been  uppermost  with  them.  In  a  word, 
idealism  stands  for  the  human  element  and  the  institution. 

Materialists,  on  the  other  hand,  have  tended  to  regard  man  as 
dominated  by  his  natural  environment.  They  have  believed 
that  man  qannot  presume  to  dictate  terms  to  nature,  therefore 
laissez  faire,  —  let  things  alone,  that  natural  forces  may  rule. 
Pleasure,  or  utility,  gained  largely  through  material  means,  has 
been  the  center  of  their  philosophy ;  though  latterly  their  con- 
cepts have  been  broadened  by  making  happiness  their  criterion. 
The  materialist  has  thought  most  of  the  immediate  material 

1  These  terms  will  not  be  used  in  their  strict  metaphysical  significance, 
but  in  the  more  popular  sense  as  indicating  a  general  non-technical  view- 
point towards  life  and  history. 


8  ECONOMIC  THOUGHT 

result  or  utility ;  but  little  of  the  spiritual  or  ideai.  The  great- 
est material  good  for  the  greatest  number  has  been  his  ultimate 
test  and  goal.  The  leaders  in  this  philosophy  have  been  such 
men  as  the  Sophists  and  Epicureans  in  antiquity ;  Hobbes  and 
Locke  in  early  modern  times;  and  the  French  Encylopedists, 
Jeremy  Bentham,  and,  in  his  earlier  thought,  John  Stuart  Mill, 
more  recently. 

This  philosophy  has  generally,  as  a  matter  of  fact,  tended 
toward  individualism.1  That  is  its  logical  outcome.  Under  its 
sway,  individualism  grew  up  in  political  and  economic  thought 
toward  the  end  of  the  Middle  Ages.  The  thought  of  its  ad- 
herents has  been  the  ferment  that  has  led  to  the  dissolution  of 
inherited  religious  and  moral  systems,  and  the  casting  off  of 
outlived  cultures.2 

These  philosophies  represent  two  sides  of  human  social  life, 
and  they  constantly  react  upon  one  another.  They  have  ever 
been  interrelated.  They  are  indicative  of  what  is  perhaps  the 
most  fundamental  contrast  in  economic  theory,  that  between 
man  and  "  nature,"  labor  and  "  land."  Idealism  is  related  to 
the  institution,  and  is  conservative.  Reasonable  idealists,  how- 
ever, do  not  uphold  the  letter,  but  the  spirit  of  the  institution ; 
and  thus,  under  changing  conditions,  material  factors  enter 
through  the  door  of  realism,  or  the  institution  loses  its  efficiency. 
The  outside  is  let  in.  It  must  be  let  in  to  preserve  the  institution. 
On  the  other  hand,  materialism,  in  opposing  institutions  and 
denying  man's  power  to  dictate  terms  to  nature,  must  not  be 
thought  of  as  merely  negative  and  unrelated.  The  negative  is 
always  related  to  the  positive.  Individualism  does  not  necessa- 
rily mean  non-organization.  In  their  relation  to  one  another,  the 
two  philosophies  are  analogous  to  man  and  "  nature,"  heredity 
and  environment ;  and  each  reacts  upon  the  other  in  a  similar 
fashion. 

In  criticism  of  the  two  philosophies,  taken  separately,  it  may 

1  Cf.  Bonar,  Philosophy  and  Political  Economy,  chapters  on  Epicureans, 
Hobbes,  Locke,  etc.  But,  on  the  other  hand,  many  phases  of  socialism 
are  based  upon  a  similar  philosophy,  —  though  perhaps  illogically  so. 

J  Schmoller,  Grundriss  der  allgemcinen  Volkswirthschaftslehre,  p.  71. 


THE  HISTORY  OF  ECONOMIC  THOUGHT  9 

be  said  that  materialists  overvalue  reason  and  understanding, 
while  idealism  rests  on  ideal  postulates;  that  the  one  takes  a 
one-sided  view  of  moral  forces,  while  the  other  neglects  material 
facts ;  one,  by  undervaluing  the  concept  of  society,  unduly  re- 
stricts the  field  for  social  action,  while  the  other,  by  frequently 
conceiving  of  the  individual  as  existing  for  society,  goes  to  the 
other  extreme. 

Every  thinker,  economist  or  not,  must  at  some  time  or  other 
put  the  question  to  himself,  is  your  viewpoint  that  of  a  material- 
ist or  an  idealist  ?  Or,  if  the  attempt  is  made  to  attain  the  truest 
viewpoint  of  all  by  harmonizing  the  two,  the  question  always 
remains,  where  shall  the  line  be  drawn? 

II.  Method.  —  Broadly  speaking,  the  history  of  science  in 
general  reveals  two  distinct  methods,  two  processes  by  which 
truth  is  sought.  These  are  commonly  called  inductive  and  de- 
ductive. There  is  a  method  which  is  neither  inductive  nor  de- 
ductive in  the  technical  sense  of  the  terms,  and  which  may  be 
called  the  statistical  method.1  This  last,  however,  is,  in  the  final 
analysis,  a  combination  of  the  first  two.  Moreover,  one  can 
scarcely  follow  either  method  to  the  absolute  exclusion  of  the 
other;  but  rather  they  are  complementary.  Yet  with  some 
economists,  deduction  so  predominates  that  their  method  is 

1  Schonberg,  Handbuch  d.  Pol.  Ok.,  3  Band  2,  p.  206,  art.  by  Riimelin. 
Also,  Oncken,  Geschichte der  National  Okonomie,p.  9,  distinguishes  (i)  "die 
exacte  oder  philosophische,  (2)  die  historische  oder  besser  historisch-sta- 
tistische,  und  endlich  (3)  die  historisch-philosophische, '  welche  einen  synthet- 
ischen  Character  besitzt.' "  Quesnay,  Ricardo,  Von  Thiinen,  Jevons,  etc., 
pursued  the  first ;  the  Mercantilists,  Miiller,  List,  Hildebrand,  etc.,  followed 
the  second ;  Aristotle,  Smith,  Marx,  and  Kant  illustrate  the  last.  Rumelin 
in  the  able  discussion  of  this  point  just  referred  to  properly  distinguishes 
between  the  inductive  and  the  statistical  methods,  on  the  ground  that  the 
former  deals  with  classes  or  kinds  of  which  one  thing  or  case  can  be  taken  as 
typical  and  made  the  basis  for  induction,  whereas  in  statistics  as  a  method 
pluralities  are  dealt  with  which  have  some  distinguishing  character  in  com- 
mon, but  may  differ  more  or  less  as  to  other  features.  This  makes  analysis 
necessary.  Thus  we  may  oppose  the  statistical  method  to  the  inductive 
or  to  the  deductive  method  taken  alone.  It  seems,  however,  that  the  dif- 
ference lies  in  the  fact  that  the  statistical  method  combines  both,  only  thus 
making  a  peculiar  method. 


10  ECONOMIC  THOUGHT 

called  deductive,  and  vice  versa.  In  all  times,  each  method 
appeals  to  its  own  type  of  mind. 

As  will  appear  further  on,  there  has  been  much  debate,  es- 
pecially in  Germany,  over  the  relative  merits  of  the  two  methods, 
though  few,  if  any,  now  deny  that  each  has  its  place.  In  fact, 
the  dispute  generally  sprang  from  different  ideas  as  to  the  scope 
and  completeness  of  economics.  Thus  those  writers  who  make 
economics  deal  chiefly  with  such  subjects  as  the  theory  of  value 
and  money,  especially  if  inclined  to  emphasize  the  completeness 
of  the  science,  make  large  use  of  deduction.  And  properly  so. 
In  dealing  with  such  a  question  as  the  incidence  of  taxation,  for 
example,  observation  and  induction  would,  until  very  recent 
times,  at  least,  have  thrown  relatively  little  light.  When,  how- 
ever, the  tendency  is  to  broaden  economics  by  bringing  in 
political  and  ethical  considerations  or  making  it  an  "  applied  " 
science,  there  is  a  natural  inclination  to  ask  for  more  facts  and 
to  use  a  more  historical  and  inductive  method. 

The  deductive  or  "  isolating  "  method  is  that  which  works 
from  the  general  to  the  particular  or  special.  It  leads  a  thinker 
to  look  within  for  his  premises,  turning  over  in  bis  mind  his  own 
concepts,  familiar  facts,  and  definitions.  In  a  word,  it  relies 
much  upon  introspection.  Sometimes  it  is  maintained  by  such 
thinkers  that  sufficient  premises  can  be  drawn  from  common 
experience ;  then  abstract,  unverified  "  natural  "  impulses  are 
apt  to  be  depended  upon.  Thus  Richard  Whately,  Archbishop 
of  Dublin,  argued  that  political  economy  needed  no  collection  of 
facts.1  When,  a  number  of  years  ago,  an  attempt  was  made  to 
organize  a  society  for  the  study  of  economic  phenomena  in  Min- 
neapolis, the  organizer  was  constrained  to  write,  "  The  opinion 
prevails  far  too  widely  that  political  economists  must  be  mere 
doctrinaires,  and  must  contend  for  some  set  of  opinions  and  some 
course  of  policy.  Critical  study  of  phenomena  is  as  unpopular 
as  free-thinking  in  religion."  2 

It  is  this  extreme  type  of  deductive  method  that  gives  rise 
to  what  the  German  economist  Knies  has  called  absolutism  of 

1  Political  Economy,  IX,  pp.  148-150. 

1  Prof.  Folwell,  Johns  Hopkins  University  Studies,  Vol.  VI,  p.  7. 


THE  HISTORY  OF  ECONOMIC  THOUGHT  n 

theory.  God  is  unchangeable,  and  so  is  the  mind,  sometimes 
runs  the  argument,  hence  deductions  drawn  from  the  nature  of 
God  and  the  mind  are  of  the  same  absolute  character.  They  are 
good  for  all  times  (perpetualism)  and  for  all  places  (cosmopoli- 
tanism). "  Political  economy,"  said  an  English  economist  of  a 
former  generation,1  "  belongs  to  no  nation ;  it  is  of  no  country ; 
it  is  founded  on  the  attributes  of  the  human  mind,  and  no  power 
can  change  it."  And  it  was  such  a  spirit  which  led  another  Eng- 
lish economist  (Torrens)  to  state  that  the  period  of  doubt  and 
controversy  was  passing  away,  so  that  within  a  generation  all 
men  would  believe  alike  in  economic  theory.2 

There  have  been  many  revolts  against  this  method  of  thought, 
—  a  method  which,  it  will  have  been  observed,  goes  easily  with 
the  philosophy  of  idealism.  Socrates3  and  Bacon  led  such  re- 
volts in  their  days,  and  about  the  middle  of  the  last  century 
the  Historical  School  arose  in  Germany.  This  stood  for  the  in- 
ductive method,  that  is,  the  method  which  leads  a  thinker  to  look 
without  to  the  external  world  for  facts  to  serve  as  the  basis  for 
the  conclusions  which  are  to  be  his  premises. 

The  Historical  School,  as  will  be  seen  more  in  detail,  denied 
that  economic  doctrines,  especially  in  their  practical  application 
as  policies,  are  good  for  all  times  and  places.  Human  nature 
itself  is  not  unchangeable.  Told  that  selfishness  is  the  guiding 
principle  of  man  in  his  economic  actions,  they  refused  to  adopt 
this  idea  as  a  premise  before  they  had  investigated  the  phe- 
nomena of  actual  life  and  searched  into  the  manifestations  of 
human  motives. 

1  Lowe  (Robert),  "  Recent  Attacks  on  Political  Economy,"  Nineteenth 
Century,  November,  1878. 

1  Essay  on  Production  of  Wealth,  1821. 

3  True,  Socrates  told  man  to  study  himself.  But  in  his  day  that  was  a 
step  in  the  direction  of  the  concrete  and  inductive.  The  apparatus  and 
method  for  the  study  of  nature  were  not  developed,  and  the  abstract  specu- 
lation of  his  time  was  concerned  with  the  actual  physical  universe,  etc. 
It  was  in  Bacon's  spirit,  then,  that  Socrates  urged  observation  in  study  of 
man.  Induction  works  out  from  the  observation  of  special  individual 
cases  to  the  general  rule  or  "law"  which  explains  and  which  may  serve  as 
a  basis  for  deductions.  Socrates  himself  was  both  deductive  and  inductive. 
He  objected  merely  to  the  exclusive  and  abstract  use  of  deduction. 


12  ECONOMIC  THOUGHT 

As  one  looks  back  over  the  course  of  economic  thought  and 
examines  its  changing  methods,  one  is  reminded  of  attempts  that 
have  been  made  to  distinguish  certain  stages  in  the  evolution  of 
human  thought  in  general,  notably  the  three  stages  of  Comte. 
These  stages  were  called  by  Comte  *  the  theological,  the  meta- 
physical, and  the  positive.  In  the  first  stage  men  seek  a  "  cause  " 
for  phenomena,  and  find  it  to  lie  in  the  immediate  action  of 
supernatural  beings.  In  the  second,  one  great  entity,  "  nature," 
is  substituted  as  the  cause,  and  phenomena  are  said  to  be  due  to 
abstract  "essences  "or  forces  within  the  objects,  but  separate  from 
them :  sleep  is  caused  by  a  "  soporific  principle  "  ;  water  rises  in 
the  tube  because  "  nature  abhors  a  vacuum."  In  the  positive 
stage,  men  classify  phenomena  and  establish  sequences  in  the  na- 
ture of  cause  and  effect ;  they  discover  quantitative  relations  and 
seek  to  represent  all  phenomena  as  aspects  of  a  single  general 
fact.  During  the  theological  and  metaphysical  stages,  the  de- 
ductive method  is  predominant.  Early  investigators  may  be 
regarded  as  overwhelmed  by  a  multiplicity  of  facts,  to  gather  to- 
gether and  classify  which  req  uired  time.  Meanwhile  it  was  neces- 
sary to  regard  them  simply  as  more  or  less  isolated  facts, — which 
left  the  mind's  desire  for  unity  unsatisfied, — or  seek  an  explana- 
tion from  within  the  thinker's  own  consciousness.  The  result 
was  the  dogma  that  it  is  God's  will,  or  some  metaphysical  law 
of  "  nature."  Those  who  thus  traced  all  phenomena  to  a  few 
easily  grasped  "  causes  "  bore  everything  before  them.2 

The  triumph  of  such  abstract  deductive  methods  was  only 
temporary.  Becoming  weary  of  empty  speculations,  as  their 
slight  foundations  were  perceived,  men  turned  to  follow  those 
who  confined  their  attention  to  the  knowable  and  attempted  to 
explain  that  by  more  rational  and  concrete  methods.  Thus 
there  came  about  a  condition  similar  to  Comte's  positive  stage. 

It  is,  however,  improper  to  speak  of  these  methods  as  stages 
in  the  sense  of  their  following  one  another  in  chronological  order ; 
for  they  overlap,  and  cases  may  be  found  of  the  contemporaneous 

1  Positive  Philosophy,  Chap.  I ;  Martineau's  translation,  p.  26. 

2  Cf .  Hobhouse  on  "  Comte's  Three  Stages  "  in  the  Sociological  Review  for 
July,  1908. 


THE  HISTORY  OF  ECONOMIC  THOUGHT  13 

existence  of  all  the  stages,  even  in  the  field  of  a  single  science. 
There  are  "  theological  "  economists  to-day,  perhaps,  and  cer- 
tainly there  are  economists  whose  mode  of  thought  places  them 
in  the  metaphysical  stage.  An  extreme  illustration  will  serve  to 
make  the  meaning  clear.  The  American  economist,  Henry  C. 
Carey,  in  speaking  of  the  Malthusian  theory  of  population,  asks 
how  a  good  God  could  allow  such  things  as  it  teaches.  He  de- 
clares the  doctrine  incompatible  with  God's  character ;  therefore 
it  is  untrue.  Of  course  he  does  not  stop  here  in  his  argumenta- 
tion, but  the  point  is  that  he  introduces  this  reasoning  as  an 
essential  support  for  his  ideas.  Political  economists  of  the 
metaphysical  type,  a  type  preeminently  English,  tend  to  deduce 
all  economic  phenomena  from  so-called  fundamental  principles 
of  human  nature,  axioms,  and  definitions.  Their  earmark  is 
a  certain  use  of  the  word  "  natural."  Glib  explanations  that 
this  or  that  is  according  to  a  law  of  nature  or  that  human  nature 
is  thus  and  so,  are  the  danger  signals.  The  legal  thought 
of  the  past  generation  is  a  notable  lingering  place  of  this  taint ; 
and  those  economists  who  argue  about  "  natural  rates  "  (for 
wa.ges,  railway  charges,  etc.),  maintaining  that  competition  is 
natural,  for  instance,  show  a  similar  tendency.  As  already 
stated,  the  method  of  thought  of  such  men  is  necessarily  deduc- 
tive. 

It  remains  to  be  observed  that  cycles  in  method  seem  to  have 
existed.  The  deductive  or  philosophical-abstract  method  pre- 
vailed in  all  early  economic  thought  of  a  formal  character  that  is 
recorded.  Then  the  Mercantilists  and  Kameralists  of  the  six- 
teenth and  seventeenth  centuries  showed  some  tendency  toward 
an  inductive,  though  rather  empirical,  method.  But  the  early 
French  economists  and  Adam  Smith  were  primarily  deductive, 
and  the  "  Epigones  "  who  followed  degenerated  into  dogmatism. 
The  early  historical  economists  then  arose  as  an  inductive  school, 
perhaps  even  going  to  extremes ;  and,  after  a  generation  given  to 
the  collection  and  comparison  of  facts,  the  need  for  deduction 
became  effective.  The  Austrian  school  of  economists  and  Pro- 
fessor Marshall  in  England  then  came  to  the  front;  but  their 
method  is  not  that  of  the  older  deductionists,  being  based  upon 


14  ECONOMIC  THOUGHT 

the  preceding  era  of  induction  and  largely  free  from  theological 
or  metaphysical  tendency.  The  cycle  has  not  been  a  circle,  but 
a  spiral,  rising  to  higher  planes.  At  the  present  time  economists 
are  largely  engaged  in  concrete  investigations,  historical  and 
statistical;  but  numerous  treatises  are  appearing,  indicating 
the  concomitant  and  scientific  use  of  both  methods.  Induction 
and  deduction,  the  concrete  and  the  abstract,  must  go  hand  in 
hand. 


THE    ORIGIN   AND    TARDY   DEVELOPMENT    OF  ECONOMIC 

THOUGHT 

THE  origin  of  economic  thought  is  lost  in  the  past.  In  its 
simplest  form  it  must  have  always  existed  wherever  thinking 
beings  sought  to  gain  a  living.  Economic  ideas  of  any  definite- 
ness  find  their  earliest  expression,  however,  in  rules  of  conduct 
or  moral  codes  formulated  by  priests  or  lawgivers.  These 
moral  codes,  like  the  Mosaic  law,  for  example,  in  dealing  with 
man's  place  in  the  world,  with  life  and  death,  and  the  ends  of 
existence,1  necessarily  touch  upon  economic  ideas.  If  it  be 
said  that  custom  ruled  the  early  civilizations  and  that  these 
codes  are  the  expression  of  custom,  the  same  conclusion  holds. 
The  philosophy  underlying  is  broad  and  simple,  and  economic 
concepts  are  presented  with  ethics  and  religion  as  one  whole. 
Not  until  group  life  begins  to  move  in  the  new  and  complicated 
ways  of  money  economy  do  economic  ideas  begin  to  become 
sharply  differentiated.  It  is  when  problems  of  colonies,  inter- 
national trade,  money,  taxation,  etc.,  arise,  that  the  Greeks 
begin  to  discuss  economic  questions. 

The  reasons  for  the  tardy  development  of  important  eco- 
nomic ideas  among  the  ancients  are  significant,  for  they  throw 
light  upon  the  origin  of  the  science  and  the  factors  essential  to 
its  growth.  These  reasons,  being  partly  subjective,  partly  objec- 
tive, fall  into  two  great  classes,  —  though  the  close  interrela- 
tion between  them  is  noteworthy. 

Among  the  subjective  or  psychological  causes,  perhaps  the 
first  to  be  noted  is  the  tendency  of  the  ancient  thinkers  to  look 
down  upon  physical  wants.  Material  pleasures  and  the  gratifi- 
cation of  bodily  desires  were  frequently  frowned  upon.  Soc- 
rates thought  that  to  have  few  wants  was  godlike,  and  that 

1  Schmoller,  Grundriss  der  dlgemeinen  Volkswirthschaftslehre,  S.  69  ff. 

IS 


16  ECONOMIC  THOUGHT 

was  the  spirit  of  the  Hindu  people.  Where  such  an  attitude 
prevails,  the  development  of  a  science  which  deals  with  the 
satisfaction  of  wants  is  difficult. 

This  disregard  for  material  considerations  is  a  concomitant 
of  the  dominance  of  ethical  ideas.  The  good  life,  leading  to  the 
happy  life,  was  the  object,  and  so  closely  was  this  end  kept  in 
mind  that  the  material  basis  for  it  was  little  regarded.  To-day 
we  will  find  it  impossible  to  think  as  the  men  living  in,  say,  400 
B.C.  thought,  so  inseparable  were  their  ideas  about  right  and 
wrong  on  the  one  hand  and  economic  advantage  and  disad- 
vantage on  the  other.  But  the  ethical  sanction  dominated  this 
simple,  undifferentiated  social  philosophy  of  theirs. 

Part  and  parcel  of  this  subjective  attitude  is  the  fact  that 
some  of  the  interests  most  conducive  to  economic  study  were 
especially  deprecated.  One  of  the  most  fruitful  sources  of 
economic  speculation  has  been  the  earnest  desire  to  better  the 
condition  of  the  laboring  classes.  But,  in  general,  pagan  phi- 
losophy teaches  that  industry,  except,  perhaps,  in  agriculture, 
is  degrading  to  body  and  intellect.  Artisans  belonged  to  the 
lowest  caste,  and  during  the  greater  part  of  their  history  the 
Greeks  and  Romans  despised  the  laboring  and  trading  classes. 
Aristotle  argues  that  in  the  best  government,  where  the  citizens 
are  all  virtuous  and  happy,  "  none  of  them  should  be  permitted 
to  exercise  any  low  mechanical  employment  or  traffic,  as  being 
ignoble  and  destructive  to  virtue ;  "  1  and  Plato,  in  treating  of 
the  ideal  state,  deems  it  not  worth  while  to  concern  himself 
with  the  trading  and  artisan  classes.  The  above  quotation 
from  Aristotle  goes  on  to  say  that  those  destined  for  public 
office  should  not  even  be  husbandmen,  for  leisure  is  necessary 
to  improve  in  virtue  and  fulfill  one's  duty  to  the  state.  This 
suggests  that  his  disapproval  of  labor  arises  in  part  from  other 
grounds  than  its  inherent  baseness,  namely,  from  his  belief  in 
the  expediency  of  leisure.  This  side  of  the  philosophers'  atti- 
tude toward  labor  has  often  been  overlooked.  When  it  is 
remembered  to  what  an  extent  the  development  of  political 
economy  has  gone  hand  in  hand  with  a  recognition  of  the  im- 
1  Politics,  VII,  iv. 


DEVELOPMENT  OF  ECONOMIC  THOUGHT      17 

portance  of  labor,  the  significance  of  the  preceding  ideas  ap- 
pears. Adam  Smith  ascribes  to  labor  so  much,  that  the  social- 
ists profess  to  have  learned  from  the  Wealth  of  Nations  to 
attribute  all  value  to  labor,  and  to  demand  for  labor  the  entire 
product  of  industry. 

The  same  general  point  concerning  indifference  or  aversion 
to  economic  phenomena  might  be  made  with  regard  to  financial 
matters,  though  with  some  exceptions. 

The  omnipotence  of  the  state  in  antiquity  and  the  ascend- 
ency of  purely  political  interests  are  other  factors  retarding  the 
development  of  economic  thought.  Where  political  specula- 
tion, as  such,  absorbs  the  attention  of  thinkers,  economics  re- 
mains in  a  subordinate  place.  While  the  mere  fact  of  the  domi- 
nance of  the  state  and  absence  of  individualism  does  not  seem 
necessarily  to  preclude  economics,  but  rather  to  limit  the  field 
for  economic  speculation  *  to  matters  of  public  interest,  it  does 
result  in  a  one-sided  viewpoint.  Certainly  Economics  did  not 
come  into  existence  as  a  science  until  the  importance  of  the 
individual  had  been  realized  in  a  different  way  than  ever  it  was 
in  antiquity. 

So  far  as  it  was  the  idea  of  the  ancients  to  gam  wealth  by 
conquest  and  forced  labor,  another  subjective  force  working 
against  the  evolution  of  economic  thought  may  be  distin- 
guished. This  idea  —  and  it  played  no  small  part  in  ancient 
civilizations  —  is  not  in  harmony  with  the  aim  of  political 
economy,  which  seeks  the  laws  that  increase  wealth  by  the 
encouragement  of  domestic  production  and  by  the  peaceful  ex- 
change of  domestic  products  for  foreign  goods. 

Finally,  among  subjective  reasons,  must  be  mentioned  that 
tendency  in  men  which  leads  them  first  to  busy  themselves 
with  the  remote.  That  "  familiarity  breeds  contempt,"  while 
"  distance  lends  enchantment,"  is  true  in  the  evolution  of 
science.  As  Sir  Henry  Sumner  Maine  remarks,  in  discussing 

1  The  distinction  between  those  factors  which  prevented  or  retarded  and 
those  which  merely  modified  or  determined  is  to  be  observed.     The  same 
factor  may  have  both  kinds  of  effect.    The  modifying,  directive  aspects  of 
these  and  other  factors  will  be  discussed  below, 
c 


1 8  ECONOMIC  THOUGHT 

family  types  in  certain  countries,  "  natural  families  have  not 
been  as  carefully  examined  as  could  be  wished ;  they  have  not 
the  strangeness  of  the  house  community  in  the  eyes  of  the  ob- 
servers." *  Wonder  and  surprise  are  effective  causes  for  interest 
and  study.2  Remote  and  mysterious  things  arouse  our  curi- 
osity, leading  to  hazardous  mountain  climbing  and  quests  for 
the  north  pole.  So  astronomy  was  the  first  of  the  natural 
sciences,  and  to  this  day  many  men  by  their  gifts  for  astronomical 
research  illustrate  the  same  attitude.  Economic  phenomena, 
especially  in  the  days  of  relatively  static  and  simple  economic 
life,  were  slow  in  arousing  interest.  Because  of  their  nearness 
and  the  general  superficial  familiarity  with  them,  they  were  not 
singled  out  for  special  study. 

From  the  objective  point  of  view,  economic  thought  was  ham- 
pered in  two  general  ways :  the  phenomena  were  lacking,  and 
attention  was  called  from  such  economic  phenomena  as  there 
were  to  other  fields.  To  put  it  in  another  way,  economic 
phenomena  were  deficient  in  number  and  hi  weight,  that  is, 
absolutely  and  relatively. 

The  subject  matter  of  Economics,  as  a  social  science,  is 
human  relations.  So  far  as  the  production  and  distribution  of 
wealth  are  directly  involved,  it  deals  with  relations  between 
individuals,  between  households,  between  states,  and  the  recip- 
rocal relations  which  in  turn  arise  among  these  various  units. 
Now  this  great  complex  of  relations  did  not  exist  in  the  past 
to  anything  like  the  same  extent  that  it  now  does.  Especially 
simple  were  the  relations  between  states,  and  those  between 
individual  and  state. 

More  concretely,  division  of  labor  was  not  carried  very  far. 
An  independent  domestic  economy  means  a  large  degree  of 
economic  isolation,  and  this  characterizes  the  states  of  antiquity. 
Only  with  the  growth  of  division  of  labor  and  exchange  could 
economic  relations  grow  in  number  and  significance. 

1  Early  Law  and  Custom,  VIII,  p.  243. 

2  Adam  Smith  discusses  this  general  idea  in  his  essay  on  "The  Principles 
which  lead  and  direct  Philosophical  Enquiries,  Illustrated  by  the  History 
of  Astronomy."     (Works,  V,  pp.  55,  88.) 


DEVELOPMENT  OF  ECONOMIC  THOUGHT      19 

Still  more  concretely,  the  problems  of  public  finance  were 
relatively  unimportant.  The  revenues  and  expenditures  of  the 
ancient  Grecian  states,  for  example,  were  comparatively  insig- 
nificant. When  the  Peloponnesian  War  began,  the  entire  revenue 
of  Athens  amounted  to  about  1000  talents,  or  a  little  over 
$i, 000,000. x  This  would  be  but  a  bagatelle  in  the  budget  of  a 
modern  state.  The  French  budget  for  1909  estimated  the 
revenue  of  the  state  at  3,973,265,048  francs,  say  $790,000,000, 
and  the  expenditure  at  3,973,035,678  francs.  The  total  esti- 
mated ordinary  receipts  of  the  United  States  were  about  the 
same.  The  financial  operations  of  Rome  were,  of  course,  much 
larger  than  those  of  the  Grecian  states,  but  they  were  far  less 
complicated  than  ours.  War  was  in  general  self-supporting, 
and  even  yielded  a  revenue  in  the  shape  of  booty  and  tribute. 
Public  debts  like  those  of  the  modern  nation  were  undreamed 
of,  and  such  taxes  as  existed  were  "farmed"  out  to  be  collected 
by  private  contractors.  When  one  recalls  the  important  part 
public  finance  has  played  in  economic  thought,  as  seen  hi  the 
careers  of  Sully  and  Colbert,  for  instance,  and  in  the  United 
States  after  the  Civil  War,  one  realizes  that  a  great  stimulus 
was  lacking.  Or  take  foreign  trade.  International  commerce 
gives  rise  to  many  interesting  questions  of  political  economy, 
but  it  was  not  encouraged  by  ancient  states,  whose  ideal  was 
national  exclusion.  Sparta  was  such  a  state ;  and  Plato's  ideal 
states,  even  the  second  best,  limited  intercourse  with  foreigners, 
the  barbaroi. 

The  objective  factors,  which,  by  attracting  men's  attention 
and  energies,  threw  into  the  background  the  consideration  of 
such  economic  phenomena  as  existed,  also  embraced  certain 
social  institutions  and  customs,  i.e.  subjective  factors  that  had 
become  crystallized.  Practical  politics,  war,  religious  activities, 
filled  a  large  part  of  men's  lives.  The  relative  lack  of  security 
both  for  life  and  property  which  characterizes  ancient  times 
was  also  an  important  factor  in  retarding  exchange  and  saving, 
and  economic  activities  in  general. 

1  Blanqui,  History  of  Political  Economy,  p.  13.  Taken  from  Grote,  VI, 
p.  10. 


20  ECONOMIC  THOUGHT 

Thus,  the  phenomena  being  largely  lacking,  and  the  spirit  or 
mental  attitude  indifferent  or  hostile,  it  is  little  wonder  that 
the  peoples  of  antiquity  not  only  did  not  evolve  a  body  of 
economic  doctrine,  but  even  showed  a  paucity  of  economic 
ideas. 

In  what  has  gone  before,  reference  has  been  made  to  the 
ancients  alone.  Much  that  has  been  said,  however,  is  appli- 
cable to  peoples  of  other  times.  Although  it  was  formally  quite 
different,  during  the  period  of  the  Middle  Ages,  as  will  appear 
in  the  chapter  dealing  with  that  time,  the  situation  was  not 
dissimilar,  whether  regarded  subjectively  or  objectively.  On 
the  one  hand,  the  teachings  of  the  Church  were  hostile  to  trade ; 
on  the  other,  division  of  labor  and  exchange  were  undeveloped, 
and  man's  energies  were  occupied  in  reconstructing  the  political 
and  intellectual  fabric  of  civilization. 

Then  came  the  era  of  Reformation  and  Renaissance.  The 
attitude  of  men  toward  the  world  and  material  things  was 
changed,  while  economic  relations  were  multiplied  by  discoveries 
and  inventions  and  the  extended  use  of  money.  More  and 
more  men  thought  economic  thoughts,  and  erelong  the  science 
of  Political  Economy  was  born. 


B.  ECONOMIC  THOUGHT  BEFORE  THE 
SCIENCE  OF  ECONOMICS 


I.     ECONOMIC   THOUGHT  OF  THE  ANCIENTS 

IN  the  chapters  which  follow  next,  it  is  not  intended  to  con- 
vey the  idea  that  a  science  of  Economics  existed  prior  to  the 
eighteenth  century.  Quite  the  reverse.  These  chapters  are  to 
deal  with  fragmentary  economic  thoughts,  or  with  economic 
thoughts  which  are  found  imbedded  in  ethical  and  religious 
systems.  Yet  these  thoughts  are  the  stuff  of  which  the  later 
economic  theories  were  partly  made;  and,  although  from  the 
viewpoint  of  economics  they  hail  from  a  pre-scientific  period, 
their  importance  as  a  factor  in  determining  the  course  of  the 
science  may  not  safely  be  overlooked.  Accordingly,  the  reader 
is  asked  to  direct  his  attention  to  the  following  sketch  and 
brief  analysis  of  the  economic  ideas  which  obtained  in  the 
ancient  and  medieval  worlds. 


22 


CHAPTER  III 

ORIENTAL  ECONOMIC   THOUGHT,    ESPECIALLY  THE 
CONCEPTS    OF   THE   HEBREW   AND   HINDUS1 

SOME  general  points  of  contrast  may  doubtless  be  found  in 
comparing  the  economic  thought  of  the  Orient  with  that  of 
the  Occident.  For  example,  nearly  all  Oriental  peoples  will  be 
found  to  have  had  ideals  of  a  closer  brotherhood  within  national 
bounds  than  have  obtained  in  western  countries.  Eastern 
peoples,  too,  have  generally  tended  to  a  less  materialistic  view 
of  life,  not  striving  eagerly  for  industrial  progress :  moral  or 
religious  codes  have  usually  played  a  greater  part  in  shaping 
their  thought. 

Much  of  the  contrast  that  has  been  drawn,  however,  would 
not  have  held  for  the  remote  past  when  the  civilization  of  the 
west  was  young,  and  both  Orient  and  Occident  were  in  some- 
thing like  Comte's  theological  stage;  while  so  diverse  are  the 
numerous  peoples  which  come  under  the  head  of  Orientals  that 
truly  general  contrasts  are  very  few,  and  are  for  the  most  part 
so  broad  as  to  lack  force  and  precision.  Believing,  then,  that 
it  is  quite  impossible  to  generalize  with  any  great  significance 
concerning  Oriental  economic  ideas  as  a  whole,  it  is  the  purpose 
simply  to  state  what  is  known  about  such  ideas  as  they  were 
held  by  the  Semitic  and  Aryan  peoples  of  the  west  and  south 
of  Asia.  To  lump  Chinese,  Medes  and  Persians,  Jews,  Japanese, 
Arabs,  Hindus,  Egyptians,  even,  together  in  one  topic,  as 

1  Cf.  Cooke,  "  Old  Testament  Economics,"  in  Economic  Review,  XIX,  no. 
4  ;  Marigny,  Histoire  de  I' Economic  Politique  des  Anciens  Peuples ;  Michaelis, 
Commentaries  on  the  Laws  of  Moses  (Eng.  trans.,  London,  1814)  ;  Jewish 
Encyclopedia,  articles  on  agriculture,  usury,  etc. ;  and  the  following  footnote 
references. 

23 


24  ECONOMIC  THOUGHT 

is  sometimes  done,1  is  misleading,  to  say  the  least;  but  those 
concepts  of  the  Hebrews  and  of  the  Hindus  which  have  clear 
economic  significance  may  be  briefly  stated.  Then,  if  there  be 
any  common  ground,  some  precise  generalization  may  follow. 

It  may  be  observed  in  advance  that  the  subject  matter  fur- 
nished by  the  ideas  of  these  two  peoples  has  this  much  in  com- 
mon :  it  is  the  economic  thought  of  two  Asiatic  peoples,  both 
of  ancient  civilization,  and  based  upon  an  agricultural  economy ; 
and  practically  all  is  drawn  from  the  writings  of  priestly  law- 
givers. 

It  follows  from  this  latter  fact  that  any  idealistic  tendencies 
will  be  emphasized,  perhaps  to  such  an  extent  that  doubt 
may  be  felt  as  to  how  truly  the  common  thought  is  expressed. 
But  when  one  reflects  that  the  lives  of  these  people  were  largely 
determined  by  these  writings,  this  doubt  loses  some  importance. 
And,  above  all,  it  is  just  these  writings  which  have  come  down 
to  us,  exerting  a  powerful  influence  all  through  the  Middle 
Ages  and  even  to  our  own  time ;  so  that,  from  the  standpoint  oj 
the  history  of  economic  thought,  their  significance  is  not  slight. 

Several  more  or  less  practical  reasons  make  this  particular 
inquiry  worth  while.  For  one  thing,  there  is  its  value  as  a 
study  of  origins.  These  peoples  were,  in  a  sense,  in  the  child- 
hood of  civilization;  and,  just  as  psychologists  are  interested 
in  child  psychology,  economists  may  learn  lessons  from  child 
economics.  Or,  if  it  be  true,  as  many  believe,  that  there  is  a 
large  degree  of  connectedness  in  the  development  of  the  eco- 
nomic thought  of  the  world,  —  a  degree  not  generally  realized 
to  the  full,  —  the  study  of  early  sources  gains  importance ;  and, 
if  it  is  found  that  at  the  sources  religious  or  moral  sanctions 
dominate,  then  the  study  of  the  economic  aspects  of  religious 
or  moral  concepts  and  codes  becomes  closely  involved.  While 
there  is  no  logical  necessity  for  treating  Oriental  ideas  as  a 
whole,  as  do  some  writers,2  it  is  essential  to  analyze  the  thought 
of  the  Hebrews  in  this  respect.  No  one  will  deny  that  many 

1  E.g.   Cossa,  Introduction  to  the  Study  of  Political  Economy;   Ingram, 
History  of  Political  Economy. 

2  E.g.  Kautz,  Geschichttiche  Entwkkelung  d.  National  Oekonomie. 


ORIENTAL  ECONOMIC  THOUGHT  25 

of  our  religious  and  moral  beliefs  are  traceable  directly  to  Hebrew 
thought,  and  that  these  beliefs  have  in  the  past  had,  and  will 
in  the  future  have,  considerable  influence  over  economic  ideas. 
A  large  part  of  these  have  come  down  to  us  through  Chris- 
tianity, which  in  its  origin  is  an  essentially  Oriental  religion. 

This  study,  too,  will  illustrate  and  emphasize  the  importance 
of  the  relationship  between  economic  thought  and  morals  and 
ethics,  a  relationship  which,  without  being  confused,  needs  to 
be  borne  in  mind  by  the  economist. 

And  of  some  practical  significance  is  the  fact  that  light  may 
be  thrown  upon  economic  concepts  which  to  some  extent 
obtain  in  the  Orient  even  to  this  day,  possibly  suggesting  a 
better  understanding  of  the  peoples  across  the  Pacific. 

Economic  Thought  expressed  in  Rules  of  Conduct,  Laws,  etc. 
—  As  has  been  said  more  than  once,  the  central  idea  of  Hebrew 
government  and  education  was  the  fulfillment  of  the  law,  the 
commands  of  Moses  or  the  prophets  forming  the  standard  in 
all  thought  and  action,1  and  the  situation  was  quite  similar 
among  the  Hindus.  Now  such  a  situation  meant  a  minute 
regulation  of  everyday  life,2  its  economic  aspects  included,  and 
it  follows  that  the  material  for  this  study  is  mostly  drawn  from 
rules  of  conduct  or  laws.  A  study  of  those  regulations  of  the 
Hebrews  and  Hindus  which  are  significant  as  indicating  the 
character  of  their  economic  thought  shows  that  the  following 
subjects  were  the  most  important:  occupations,  agriculture, 
interest  and  usury,  labor  and  wages,  property  rights,  taxation, 
inheritance,  weights  and  measures,  adulteration,  monopoly, 
and  the  poor.  All  of  these  topics  cannot  be  treated  here,  but 
only  those  about  which  the  regulation  was  considerable  and  of 
clear  intent. 

Usury.  —  The  Mosaic  law  forbade  lending  "  upon  usury," 
that  is,  at  interest ;  it  prohibited  "  usury  of  money,  usury  of 
victuals,  usury  of  anything  that  is  lent  upon  usury."  3  This 

1  Conder,  Judas  Maccabaus,  p.  24. 

1  Among  the  Jews  the  prophets,  however,  were  generally  opposed  to  such 
a  regulatory  spirit,  tending  to  ignore  the  regulations.  See,  e.g.,  Amos  vii, 
10  ff. ;  Hosea  vi,  6;  Isaiah  i,  10-17.  3  Deut.  xxiii,  19,  20. 


26  ECONOMIC  THOUGHT 

applied  only  to  fellow  Hebrews,  however,  loans  on  usury  to 
strangers  being  allowable.  Mercy  in  case  of  loans  to  the  poor  l 
was  enjoined.  Some  evidence  of  development  in  the  law  of 
usury  exists,  for,  in  the  first  pronouncement,  interest-taking  was 
forbidden  in  the  case  of  loans  to  the  poor  alone  (Ex.  xxii,  25) ; l 
but  later  —  perhaps  because  of  fraud  —  the  prohibition  was 
extended  to  all  Israelites.  The  exception  of  strangers  must 
have  made  loans  at  interest  possible  by  using  such  persons  as 
intermediaries.  When,  in  post-exilic  days,  trade  increased  and 
with  it  loans  of  capital,  the  Rabbis  made  further  modifications.3 

Two  kinds  of  loans  were  distinguished  by  Mosaic  law :  "  Thou 
shalt  not  give  him  (i)  thy  money  upon  usury,  nor  lend  him 
(2)  thy  victuals  for  increase"4  (Lev.  xxv,  37).  Neither  is  to 
be  thought  of  as  connoting  all  that  the  term  "  interest"  does,  as 
used  in  economics,  for  they  involve  no  concept  of  capital,  and 
but  an  imperfect  one  of  value.  The  Mosaic  "  usurer  "  was 
merely  one  who  lent  things  for  considerable  periods  of  time, 
receiving  three  shekels  where  he  had  given  two,  or  three  bushels 
for  two. 

In  fact,  the  law  seems  to  have  desired  that  lending  should  be 
regarded  as  a  form  of  charity,  ordaining  that  the  poor  be  given 
loans  even  though  the  seventh  year,  when  debts  should  lapse, 
were  at  hand,  or  though  no  security  were  given  (Deut.  xv, 
7-9;  xxiv,  13).  It  must  be  remembered  that  such  regulation 
went  hand  in  hand  with  legislation  whose  aim  was  to  prevent 
the  alienation  of  property,  and  that  the  seventh  and  jubilee 
years,  if  enforced,  would  have  put  lending  on  a  very  different 
basis  than  is  usual. 

But  the  Mosaic  law  was  not  maintained  in  force  without 
modification.  The  jubilee  year  was  not  enforced,  and  commer- 

1  Deut.  xxiv,  10-14. 

1  Cf.  Driver,  Introduction  to  the  Literature  of  the  Old  Testament,  pp.  35  f. 

1  Jewish  Encyclopedia,  article  on  "Usury." 

No  essential  difference  in  treatment  appears  in  the  law ;  but  the  word 
"increase,"  indicating  that  which  was  forbidden  in  the  second  kind  of  loan, 
is  different  from  the  one  translated  as  "usury,"  and  this  might  indicate  a 
different  attitude  toward  the  former,  as  being  more  liable  to  fluctuations  in 
value  and  bulk. 


ORIENTAL  ECONOMIC  THOUGHT  27 

cial  dealings  grew.  Solomon  appears  to  have  been  engaged  in 
much  trading,  and  after  the  return  from  Babylon,  where  com- 
mercial transactions  of  many  kinds  were  highly  developed,  in- 
cluding lending  at  interest,  the  Hebrews  parted  more  from  the 
spirit  of  the  old  laws.  The  word  meaning  "  per  cent "  does  not 
seem  to  have  been  used  until  after  the  captivity,  the  idea  of 
interest  as  a  rate  being  found  in  Nehemiah  for  the  first  time; 
here  the  prophet  exhorted  the  usurers  to  restore  "  the  hundredth 
part  of  the  money,  and  of  the  corn,  the  wine,  and  the  oil,  that 
ye  exact  of  them  "  (v,  n).  An  attempt  was  made  to  keep  the 
letter  of  the  law,  however,  and  its  importance  to  an  under- 
standing of  medieval  doctrines  is  well  known. 

The  security  for  loans,  above  referred  to,  was  in  the  nature 
of  a  "  pledge,"  and  there  was  some  regulation  concerning  such 
pledges.  One  rule  might  be  formulated  thus:  Thou  shalt  not 
demand  as  a  pledge  any  of  thy  brother's  necessities.  For  a 
man's  upper  garment  must  be  returned  before  nightfall,  and 
"  no  man  shall  take  the  nether  or  the  upper  millstone  to  pledge : 
for  he  taketh  a  man's  life  to  pledge  "  (Deut.  xxiv,  6).  An- 
other rule  was  that  one  must  not  go  into  the  borrower's  house 
and  take  his  pledge,  but  must  let  him  bring  it  out ;  and  if  the 
borrower  were  a  poor  man  his  pledge  should  be  returned  before 
the  night  (Deut.  xxiv,  10-13).  I*1  the  book  of  Job  men  are 
upbraided  for  taking  pledges  of  the  poor  and  causing  them  to 
go  naked,  for  taking  the  widow's  ox  as  a  pledge,  and  for  taking 
pledges  when  no  corresponding  loans  had  been  made  (chaps, 
xxii,  xxiv). 

Among  the  most  striking  regulations  of  the  Brahmanic  law 
were  those  concerning  interest  and  usury.  Money-lending  by 
the  higher  castes  was  closely  restricted.  Brahmanas  and 
Kshatriyas  could  not  lend  anything  at  interest,  acting  like 
usurers,  except  to  exceedingly  wicked  persons  who  neglected 
their  sacred  duties.1  "  Now  they  quote  also  (the  following 
verses) :  '  He  who  acquiring  property  cheap,  gives  it  for  a  high 
price,  is  called  a  usurer  and  blamed  among  those  who  recite 
the  Veda.'  "  l  In  case  of  loans  made  without  security  the 
1  Vasishtha,  II,  40  ff. 


28  ECONOMIC  THOUGHT 

following  terms  were  legal :  for  gold,  double  value  (i.e.  100  per 
cent) ;  for  grain,  treble  the  original  price ;  anything  sold  by 
weight  might  be  lent  at  eight  times  the  original  value.1  On 
security,  the  following  law  obtained :  "  '  Hear  the  interest  for 
a  money  lender  declared  .by  the  words  of  Vasishtha,  5  mashas 
for  twenty  (Karsha-panas  may  be  taken  every  month) :  thus 
the  law  is  not  violated.'  "  This  meant  about  15  per  cent  per 
annum.  By  another  provision  2,  3,  4,  and  5  per  cent  might 
be  taken  from  the  four  castes  respectively.  There  was  differ- 
ence of  opinion  as  to  a  limit  for  aggregate  interest  payments, 
some  holding  that,  in  some  cases  at  least,  interest  should  only 
be  paid  for  one  year,  others  that  interest  should  cease  after 
the  principal  had  been  doubled.  In  any  case,  "  the  King's 
death  shall  stop  the  interest  on  money  (lent) ;  and  after  the 
coronation  of  (a  new)  King  the  capital  grows  again,"  —  illus- 
trating the  dominance  of  political  considerations. 

Various  kinds  of  interest  payment  were  distinguished :  there 
might  be  compound,  periodical,  stipulated,  corporal,  daily,  and 
use  of  pledge,2  —  corporal  interest  being  that  paid  in  labor, 
use  of  pledge  referring  to  cases  in  which  the  lender  made  use 
of  some  security,  like  a  beast  of  burden,  for  example. 

Thus  the  fact  is  apparent  that  among  the  ancient  Hindus 
interest  was  closely  connected  with  some  concept  of  a  just 
price;  that  the  rate  varied  with  the  caste,  and  that  a  wicked 
man  might  be  bled  where  another  might  not  be ;  that  the  rate 
varied  with  the  thing  lent,  loans  of  money  and  staple  com- 
modities like  grain  bearing  a  lower  rate  than  others ;  and  that 
there  was  some  maximum  limit  for  aggregate  interest  payment. 

One  striking  similarity  between  the  ideas  of  Hebrew  and 
Hindu  on  the  foregoing  subject  must  have  been  noticed,  namely, 
the  notion  that  there  should  be  some  maximum  for  interest 
payment.  At  the  death  of  the  king  or  the  jubilee  year  or  the 
doubling  of  the  principal,  interest  should  cease.  Both  peoples 
dreamed  of  a  tabula  rasa  or  jumping-off  place,  where,  to  a  greater 

1  Vasishtha,  II,  47. 

1  Sacred  Books  of  the  East,  Max  Miiller,  editor,  Vol.  II,  p.  239 ;  Gautama, 
XII,  3^35- 


ORIENTAL  ECONOMIC  THOUGHT  2Q 

or  lesser  extent,  debtor  and  creditor  should  be  equalized.  It 
will  be  observed,  too,  that  both  peoples  drew  distinctions 
between  borrowers :  here  to  the  "  stranger,"  there  to  the 
"  exceedingly  wicked  person  "  or  to  the  lower  caste,  money 
or  other  things  might  be  lent  at  usury. 

Commercial  Regulations  and  Just  Price.  —  That  some 
progress  was  made  in  reasoning  about  commercial  matters  is 
evidenced  by  a  set  of  measures  directed  toward  securing  justice 
in  buying  and  selling.  Both  Hebrews  and  Hindus  had  careful 
regulations  against  false  weights  and  measures,1  and  against 
adulteration.  Provisions  against  speculation,  monopoly,  and 
the  like  were  even  more  significant.  Raising  market  prices  by 
speculative  means  was  disapproved  of  by  Rabbinical  law, 
being  classed  with  usury  and  false  weights,  and  middlemen 
were  not  tolerated.  The  export  of  necessary  articles  of  food 
was  forbidden,  and  in  time  of  famine  no  storing  was  allowable 
—  all  must  be  put  upon  the  market.  Hand  in  hand  with  these 
ideas  went  a  limitation  of  retail  storekeepers'  profits  to  i6f  per 
cent.2 

The  Brahmanic  law  exhibits  similar  conceptions.  It  laid  a 
penalty  upon  any  company  of  merchants  who  prevented  the 
sale  of  a  commodity  by  selling  it  under  its  price,  and  a  like 
one  upon  those  members  of  such  a  company  who  sold  an  article 
belonging  to  the  whole  company  for  more  than  it  was  "  worth," 
to  their  own  profit.  Suggestive  of  modern  commercial  usage  is 
the  following  provision :  He  who  buys  unawares  in  open  market 
the  property  of  another  man  from  one  not  authorized  to  sell  it 
is  not  to  blame ;  but  the  owner  shall  recover  his  property.  If, 
however,  he  has  bought  it  in  secret  and  under  its  price,  the 
purchaser  and  the  vendor  shall  be  punished  as  thieves. 

These  regulations  all  point  toward  an  underlying  conception 
of  a  just  price.  The  things  forbidden  are  false  weights,  "  false  " 
money  values  (usury),  "false"  commodity  values  (monopoly, 

1  See   Vishnu,  V,  122-127;  Amos  viii,  4-6 ;  Deut.  xxv,   13-15;  Jewish 
Encyclopedia,  article  on  "  Police  Laws." 

2  Jewish  Encyclopedia,  before  cited.     Such  regulations  were,  of  course, 
post-exilic. 


30  ECONOMIC  THOUGHT 

underselling,  enhancing,  etc.),  "  false  "  profits,  and  the  like. 
This,  indeed,  seems  to  be  the  normal  point  of  view  of  a  people 
whose  goods  and  services  are  not  evaluated  in  markets  in  the 
economic  sense,  and  it  will  be  found  down  through  the  Middle 
Ages,  with  a  recrudescence  with  regard  to  monopolized  com- 
modities to-day.  Competitive  markets  being  practically  im- 
possible in  old  Oriental  industry,  —  to  this  day  there  is  no 
one  price  in  the  Oriental  shop,  —  the  consumer  was  very  likely 
to  be  exploited,1  and  hence  these  regulations. 

The  position  of  the  state  with  regard  to  mines  and  other 
economic  agencies  is  significant.  According  to  the  Institutes  of 
Vishnu,  the  king  was  to  keep  the  whole  produce  of  mines : 2  and 
let  the  king,  so  runs  the  pronouncement,  appoint  able  officials 
for  the  working  of  his  mines,  for  the  levying  of  taxes  and  of 
fares  to  be  paid  at  ferries,  and  for  his  elephants  and  forests.3 

Labor  and  Caste.  —  With  such  a  social  and  industrial  organi- 
zation as  was  possessed  by  the  old  Oriental  civilizations  there 
could  have  been  no  labor  problem  in  the  modern  sense.  There 
were  wage  workers,  however,  and  in  regulating  the  relations 
between  employer  and  employee  some  rudiments  of  labor  law 
were  provided.  By  Brahmanic  law,  a  hired  workman  who 
abandoned  his  work  before  the  term  had  expired  was  to  pay  the 
whole  amount  of  stipulated  wages  to  his  employer  and  a  fine 
to  the  king.4  What  had  been  destroyed  through  his  negligence 
must  be  made  good  to  his  employer.  On  the  other  hand,  if  an 
employer  dismissed  a  workman  whom  he  had  hired  before  the 
expiration  of  the  term  agreed  upon,  he  must  pay  the  full  amount 
of  wages  stipulated  and  a  fine  to  the  king,  unless  the  workman 
were  to  blame.  From  the  Mosaic  laws  little  can  be  gathered. 
As  wages  are  mentioned,  there  were  wage  earners,  but  their 
payment  was  probably  largely  in  kind.  The  chief  regulations 
concerned  mercy  and  justice  to  the  laborer,  commanding  the 
daily  payment  of  wages 6  and  warning  those  who  oppressed  the 
hireling.6 

1  Charged  "unreasonable  rates,"  we  would  say. 

*  III,  56.  •  III,  16.  «  Vishnu,  V,  153. 

'  Deut.  xxiv,  15 ;  Lev.  xix,  13.  '  Mai.  iii,  5. 


ORIENTAL  ECONOMIC  THOUGHT  31 

Labor  was  regarded  as  honorable  by  the  Hebrews;  but  no 
especial  encouragement  appears  to  have  been  given  to  it,  except 
in  agriculture.  It  was  not  until  trade  was  later  developed 
that  attention  was  paid  to  the  artisan  wage  worker,  the  Mo- 
saic law  showing  almost  no  regulation  of  trade. 

Perhaps  here  is  the  place  to  mention  briefly  the  economic 
significance  of  the  caste  system  as  found  among  the  Hindus. 
It  was,  as  Cossa  says,  division  of  labor  gone  to  seed.  It  stood 
for  rigidity  of  society  and  for  permanent  inequality  among 
social  classes,  an  attitude  which  means  a  point  of  view  in 
economic  thought.  The  four  castes,  beginning  at  the  top, 
were :  Brahmanas,  Kshatriyas,  Vaisyas,  and  Sudras.  The 
functions  which  the  dominant  elements  conceived  to  belong 
to  these  castes  were  as  follows : x  Brahmanas  existed  to  study 
and  teach  the  Veda,  to  make  sacrifices  for  others,  and  to 
give  and  accept  alms ;  Kshatriyas  were  constantly  to  practice 
arms  and  protect  the  world,  receiving  due  reward  in  taxes; 
Vaisyas  were  the  husbandmen,  tending  cattle  and  tillage  being 
their  chief  functions,  with  traffic  and  money-lending  allow- 
able ;  finally,  the  Sudra  was  the  artist  and  artisan,  having  as 
his  general  duty  the  service  of  the  superior  castes.  One  of  the 
great  duties  of  the  king  was  to  keep  the  four  castes  in  the 
practice  of  their  several  duties. 

That  some  elasticity  was  possible  in  this  system  appears 
from  the  fact  that  in  time  of  distress  each  caste  might  follow 
the  occupation  of  the  one  below  it.  In  general,  however,  the 
most  severe  separateness  was  to  be  maintained,  and  any  man 
having  connection  with  a  woman  of  one  of  the  lower  castes 
was  to  be  put  to  death.2 

Agriculture  Favored.  — "  Although  trading  gives  greater 
profits,  these  may  all  be  lost  in  a  moment;  therefore,  never 
hesitate  to  buy  land,"  runs  an  old  Rabbinical  maxim ; 3  and 
the  sage  author  of  the  book  of  Proverbs,  in  a  like  vein,  says, 
"  He  that  tilleth  the  soil  shall  have  plenty  of  bread."  4  In  fact, 

1  Sacred  Books  of  the  East,  Vols.  II  and  XIV,  translations  edited  by 
Max  Miiller:  Vishnu,  III,  26-27,  56-62;  Vasishtha,  II,  13-20. 

*  Vishnu,  V,  43.         s  Yeb.  63  a.         4  Prov.  xii,  n  (Revised  Version). 


32  ECONOMIC  THOUGHT 

although  an  earlier  condition  in  which  the  shepherd  was  favored 
over  the  tiller  of  the  soil  may  be  indicated  by  the  story  of  Abel 
and  Cain,  it  has  been  well  said  that  agriculture  was  the  basis 
of  the  national  life  of  the  Israelites,  state  and  church  being 
both  founded  upon  it.1  The  dominant  place  given  to  agricul- 
ture may  be  accounted  for  in  part  on  the  ground  that  the  codes, 
hymns,  and  maxims  of  these  Oriental  civilizations  were  largely 
drawn  from  a  time  when  pastoral  peoples  were  just  settling 
down  to  an  agricultural  life,  and  it  seems  likely  that  a  more  or 
less  conscious  purpose  of  the  lawgivers  was  to  fix  their  people 
in  such  a  life.2 

On  the  other  hand,  there  was  a  tendency  to  regard  trade 
and  the  crafts  with  disfavor.  The  Vaisya  husbandman  stood 
above  and  aloof  from  the  Sudra  artisan.  The  Jew  came  to 
regard  the  trader  with  a  considerable  degree  of  contempt,  call- 
ing him  "  Canaanite."  3  To  what  extent  it  was  cause,  or  to 
what  extent  effect,  may  be  impossible  to  say,  but  coupled  with 
this  attitude  of  the  Hebrews  is  the  fact  that  they  did  not  enter 
into  commerce  or  manufactures  to  any  considerable  extent.  In 
the  Books  of  Maccabees  husbandry  is  mentioned,  but  trade  is 
not.  Josephus  states  that  even  in  his  time  the  Jews  were  not 
addicted  to  trade.  There  seems  to  be  no  evidence  that  free- 
born  Israelites  were  artisans  prior  to  the  exile,  and  the  crafts 
were  accounted  ignoble  and  left  to  slaves.4  It  is  true  that 
Solomon  carried  on  commerce,  but  even  in  this  case  it  was 
done  through  the  Phoenicians,  and  by  the  government  rather 
than  the  people. 

This  relatively  high  esteem  for  agriculture  is,  perhaps,  not 
so  significant  as  it  would  be  in  a  people  which  had  progressed 
further  industrially,  but  still  it  remains  a  noteworthy  charac- 
teristic of  many  Orientals  in  their  attitude  toward  industry. 
And  this  affected  their  regulations  both  positively  and  nega- 

1  Jewish  Encyclopedia,  art.  "Agriculture." 

1  Cf.  Kautz,  Geschichtliche  Entwickelung  der  National  Oekonomie,  p.  97. 

3  E.g.  Hosea  xii,  7,  8. 

4  Michaelis,  Laws  of  Moses,  Vol.  I,  art.  xxxviii.    But  for  cases  of  domes- 
tic manufacture  see  i  Chron.  iv,  21,  23;  Prov.  xxi,  19-23. 


ORIENTAL  ECONOMIC  THOUGHT  33 

tively;  it  meant  that  much  regulation  of  later  times,  with  the 
ideas  corresponding,  was  uncalled  for;  while  their  laws  were 
hostile  to  the  growth  of  manufactures  and  commerce. 

Seventh  and  Jubilee  Years.  —  Quite  peculiar  to  the  Hebrew 
law  was  the  institution  of-  the  seventh  and  jubilee  years.  This 
institution  was  based  upon  the  concept  of  God  as  a  king  own- 
ing all  the  land  of  Israel :  "  The  land  shall  not  be  sold  for  ever : 
for  the  land  is  mine"  (Lev.  xxv,  23).  Thus  to  a  lawgiver 
who  desired  to  prevent  inequality  in  wealth,  to  preserve  family 
and  tribal  property,  and  to  keep  his  people  attached  to  their 
country,  it  was  easy  to  prohibit  the  permanent  alienation  of 
lands  from  the  original  possessor.  This  Moses  did  by  enacting 
that  every  fiftieth  year  the  Hebrews  should  "  return  every  man 
unto  his  possession  "  (Lev.  xxv,  13).  It  follows  that  a  sale 
of  land  really  amounted  to  no  more  than  a  lease,  and  the  price 
necessarily  varied  with  the  remoteness  of  the  jubilee  year.  This 
was  clearly  foreseen  :  "  According  to  the  number  of  years  after 
the  jubilee  thou  shalt  buy  of  thy  neighbor  .  .  .  for  according 
to  the  number  of  the  fruits  doth  he  sell  unto  thee"  (Lev.  xxv, 
15,  16). 

Every  seventh  year  was  to  be  one  in  which  the  land  lay  fallow : 
"But  in  the  seventh  year  shall  be  a  sabbath  of  rest  unto  the 
land."  The  Rabbis  emphasized  the  religious  intent  of  the  meas- 
ure ;  but  it  seems  not  improbable  that  the  economic  desirability 
of  resting  the  land  was  recognized.  This  provision,  which  at  first 
referred  to  land  alone,  soon  was  given  a  broader  significance; 
for,  to  the  end  that  there  should  be  no  poor,  creditors  were  com- 
manded to  release  their  debtors  on  the  seventh  year  (Deut. 
xv,  4).  Perhaps  the  most  logical  interpretation  to  put  upon 
this  command  would  be  that  during  the  seventh  year  interest  was 
to  be  suspended,  —  "  he  shall  not  exact  it,"  —  and  then  it  might 
be  connected  with  the  fact  that  a  general  fallow  would  take  away 
the  means  of  interest  payment.1  The  Talmud,  however,  in- 
terpreted the  seventh-year  provision  as  ordaining  that  debts 
should  cease,  thus  making  a  virtual  statute  of  limitations.  When 
industry  and  trade  increased,  it  became  necessary  to  get  around 

1  See  Michaelis,  Laws  of  Moses,  Vol.  II,  arts.  157,  158. 

D 


34  ECONOMIC  THOUGHT 

such  a  hampering  measure  by  numerous  subterfuges  or  legal 
fictions:  thus  wages,  loans  on  pledges,  notes  guaranteed  by 
mortgage,  and  notes  waiving  the  right  for  the  one  particular 
case,  came  to  run  through  one  or  more  "  seventh  years." 

There  seems  to  be  no  good  evidence  that  the  jubilee  year, 
as  such,  was  ever  literally  kept;  the  seventh  year  apparently 
was.1 

Summary  Generalizations.  —  Largely,  though  not  entirely, 
upon  the  basis  of  the  preceding  facts,  some  broad  generalizations 
may  now  be  made  about  the  economic  ideas  of  these  peoples  and 
the  underlying  philosophy  of  life  upon  which  their  economic 
concepts  rested. 

1.  Among  the  most  salient  characteristics  of   their   social 
philosophy  may  be  mentioned  its  simplicity.     Being  in  the  child- 
hood of  civilization,  it  is  not  strange  that  they  conceived  of  life 
as  a  whole.    Their  social  life  was  in  a  sense  undeveloped,  or, 
better,  undifferentiated,  and  the  social  sciences  were  in  a  like 
condition.     Religion,  ethics,  law,  economics,  philosophy,  were 
inextricably  bound  together. 

2.  In  this  aggregate  of  social  concepts  the  dominant  member 
was  religious  or  moral.     In  fact,  it  is  roughly  true  that  these 
Oriental  civilizations  were  in  the  theological  stage,  passing  in 
some  cases  to  metaphysical.     There  was  a  dominant  priestly 
class,  and  it  was  this  class  which  preserved,  formulated,  and 
handed  down  the  traditions  that  both  expressed  and  limited  eco- 
nomic thought.     The  rules  of  the  Brahmanic  or  Mosaic  codes 
which  bore  upon  economic  matters  had  a  religious  significance : 
by  following  them  one  gained  primarily,  not  economic  well-being, 
but  a  right  life,  a  clear  conscience,  or  spiritual  perfection.     Wit- 
ness the  prohibition  of  certain  foods,  and  occupations.     And  the 
same  idea  is  manifest  in  the  rules  of  caste.     Even  when  charity 
was  ordained  it  was  in  like  spirit,  leading  to  an  emphasis  of  the 
spiritual  excellence  of  the  giver  above  the  benefit  received  by  the 
poor.     Or,  when  the  Brahmans  thought  about  poverty  and  un- 
equal distribution  of  wealth,  they  simply  attributed  such  evils 

1  Neb.  x,  32 ;  Josephus,  Antiquities  of  the  Jews,  Bk.  XIII,  Chap,  viii,  §  i ; 
XIV,  x,  6,  :6;  III,  rii,  3- 


ORIENTAL  ECONOMIC  THOUGHT  35 

to  the  sins  of  a  previous  existence  and  recommended  that  they 
be  borne  in  patience.  The  idea  of  fatalism  was  applied  to  wealth. 
No  doubt,  however,  a  strong  tendency  appears  among  the  Jews, 
at  least,  to  put  the  secondary  consideration  of  long  life  and  pros- 
perity in  the  foreground. 

3.  A  characteristic  of  the  situation  was  the  minute  regulation 
of  everyday  life.     The  sacred  laws  of  the  Brahmanic  civilization 
regulated  everything,  from  the  cleaning  of  one's  teeth  to  one's 
funeral  oblations ;  and  the  Mosaic  code  with  its  express  direc- 
tions concerning  the  sowing  of  vineyards,  eating,  and  trimming 
hair  and  beard  shows  the  same  tendency.     As  has  appeared 
above,  many  institutions  which  were  primarily  economic  were 
thus  regulated. 

4.  One  of  the  most  striking  characteristics  of  both  Hebrew 
and  Hindu  economic  thought,  as  it  was  expressed  by  philosophers 
and  lawgivers  at  least,  was  the  conflict  it  shows  between  eco- 
nomic stimuli  and  ethico-religious  ideas.     Those  factors,  sub- 
jective and  objective,  which  tended  to  develop  economic  prog- 
ress were  not  in  harmony  with  these  peoples'  philosophy  of  life. 
Among  other  things,  that  philosophy  was  characterized  by  such 
a  lack  of  individualism  and  of  materialism,  such  a  disapproba- 
tion of  industry  other  than  agriculture  and  relative  indifference 
toward  wealth,1  such  a  degree  of  passivity  and  fatalism,  that  its 
dominance  made  any  great  industrial  civilization  impossible. 

(a)  Being  extremely  idealistic,  there  was  an  exaltation  of  the 
institution  and  a  subordination  of  the  individual,  plainly  seen 
in  the  political  system.  The  state  or  the  church  came  first, 
and  was  everything.  "  Above  all,"  says  Kautz,  "  as  a  control- 
ling fundamental  of  the  entire  social  and  economic  theory  of  India 
can  be  placed  the  esthetic  self-denial  and  renunciation,  the 
unreserved  recognition  and  glorification  of  absolute  political  des- 
potism, the  denial  of  the  personal  worth  of  man  "  which  it  pos- 
sessed.2 Now  a  certain  degree  of  individualism  seems  to  have 
been  necessary  to  the  development  of  economic  thought.  With- 

1  This  was  far  less  true  of  the  Hebrews  than  of  the  Hindus,  the  former 
often  indicating  a  keen  appreciation  of  the  good  things  of  the  earth. 

2  Gesch.  Entwickelung  d.  Nat.  Oek.,  p.  87. 


36  ECONOMIC  THOUGHT 

out  it  industry  was  limited  by  lack  of  motive,  economic  relations 
were  simple,  and  economic  thought  largely  restricted  to  promul- 
gating the  interests  of  the  ruling  body. 

Closely  related  to  this  condition  was  the  lack  of  a  certain  hard- 
headed  materialism  which  has  led  the  Occident  to  glorify  the 
material  basis  for  civilization,  wealth.  Instead  of  first  deifying 
and  then  extolling  discontent,  —  "  divine  discontent,"  —  and 
continually  striving  to  raise  their  standards  of  living,  Orientals 
tended  to  limit  and  crystallize  their  standards,  abolishing  dis- 
content. Their  philosophy  did  not  lead  them  to  analyze  happi- 
ness into  different  grades  or  planes  of  satisfaction;  happiness 
with  them  was  generally  regarded  as  attained  by  decreasing 
wants.  This  general  attitude  is  one  which  is  not  in  harmony 
with  the  dominant  note  of  our  civilization,  and  it  is  probable  that 
few  Americans  really  believe  that  it  is  easier  for  a  camel  to  pass 
through  the  eye  of  a  needle  than  for  a  rich  man  to  enter  the  king- 
dom of  heaven,  unless  they  be  the  poor.  Between  these  ideals, 
as  they  find  expression  in  Christianity,  and  Occidental  civiliza- 
tion there  has  always  been  conflict,  and  they  have  become  in- 
creasingly ignored  in  our  practice. 

(b)  According  to  the  Vedas,  seeking  after  wealth  leads  to  sin. 
Even  large-scale  commerce  was  frowned  upon,  and  sometimes 
agriculture  itself.     The  Hebrews,   while  sometimes  decrying, 
sometimes  also  praise  wealth,  and  on  the  whole  by  no  means 
show  the  ascetic  spirit  of  the  Hindus ;   but  as  a  generality  the 
statement  holds  that  compared  with  the  Occident  wealth  and 
non-agricultural  industry  were  regarded  with  relative  disfavor 
or  indifference.    They  saw  that  riches  was  not  the  end ;  but 
went  further  and  overlooked  its  utility  as  a  means. 

(c)  The  element  of  passivity,  or  economic  indifference,  already 
referred  to,  is  not  in  itself  peculiar  to  Oriental  thought.     It  is, 
however,  unusually  strong  there,  and  its  connection  with  a 
rather  rigid  body  of  philosophy — crystallized,  as  it  were  —  is,  if 
not  unique,  peculiar.     There  it  found  expression  in  written 
codes ;  there  it  was  part  of  an  effective,  long-continued  religious 
system;    there  it  was  actually  applied  to  economic  thought  and 
practice.    To  what  extent  this  is  to  be  attributed  to  climate  and 


ORIENTAL  ECONOMIC  THOUGHT  37 

tropical  environment  need  not  be  said.  There  was  the  tendency 
to  accept  wealth  or  poverty  without  a  struggle:  it  was  God's 
will,  or  the  reward  for  the  acts  of  a  previous  life,  etc.  This  might 
be  termed  economic  fatalism. 

5.  Two  further  characteristics   of  Oriental    thought,  which 
were  largely  the  result  of  points  already  touched  upon,  may  be 
noted  next.     In  the  first  place,  there  is  its  fixity  and  conserva- 
tism.    The  general  aim  of  social  regulation  was  to  maintain  the 
social  equilibrium,  and  here,  as  elsewhere  among  ancient  peoples, 
static  ideals  dominated.     This  finds  expression  in  the  caste  sys- 
tem, and  in  the  isolated  national  life.     It  is  seen  in  the  long- 
stationary  condition  of  their  civilization.1 

6.  To  say  that  the  concept  of  society  and  social  welfare  was 
prominent  may  seem  strange,  yet  the  statement  appears  true. 
This  concept,  however,  was  but  little  like  our  own,  for  it  went 
hand  in  hand  with  a  lack  of  individual  rights  which  sharply  differ- 
entiates it  from  present-day  ideas.     Nor  is  this  point  made  with 
the  idea  of  drawing  a  distinction  between  Oriental  thought  and 
all  Occidental  thought.     The  Hindus'  laws  concerning  weights 
and  measures,  adulteration,  exchange,  sanitary  practice,  and 
other  matters  show  this  concept.     Among  the  Hebrews  there 
were  laws  providing  that  broken  glass  should  be  buried,  that 
water  should  not  be  thrown  in  the  streets  during  the  summer, 
and  that  there  should  be  no  chickens  or  dunghills  within  the  city 
(Jerusalem).2    Streets  were  not  to  be  blocked  by  debris  or  pro- 
jecting houses.     For  encouraging  free  intercourse,  the  width  of 
roads  was  prescribed,  the  width  being  greater  in  the  case  of  high- 
ways between  commercial  centers.     And  there  were  regulations 
concerning  weights  and  measures  similar  in  spirit  to  those  of  the 
Hindus.    Thus  one  may  conclude  that,  though  the  point  of  view 

1  Japan  not  long  since,  China  even  to-day,  has  just  awakened  from  this 
point  of  view.  These  peoples,  from  Byzantium  to  Japan,  have  lived  an 
isolated  national  life  and  shown  a  large  measure  of  national  conceit,  tracing 
their  origin  to  the  sun,  etc. 

1  See  Jewish  Encyclopedia,  article  on  "Police  Laws."  The  strong  family 
sense  of  the  modern  Jew  and  his  remarkably  persistent  race  sociality  are 
noteworthy,  though  superficially  he  often  seems  a  rather  selfish  individualist. 
The  effect  of  centuries  of  abuse  must  be  remembered. 


38  ECONOMIC  THOUGHT 

was  quite  different,  there  was  a  sense  of  social  solidarity  express- 
ing itself  in  regulatory  measures  which  resemble  in  a  way  the 
legislation  of  recent  times. 

This  fact  may  be  regarded  as  a  concomitant  of  their  idealistic 
philosophy. 

One  writer  on  the  history  of  the  Hebrews  has  much  empha- 
sized what  he  calls  the  first  appearance  of  Socialism.1  Socialism, 
however,  is  not  the  word  to  use.  What  we  find  in  the  Bible  is, 
first,  a  careful  provision  for  the  poor,  protecting  them  from  ex- 
ploitation, from  permanent  debt,  and  enjoining  free  loans  and 
charity ;  and  then  numerous  attacks  by  the  prophets  upon  the 
injustice  and  oppression  of  the  rich.  It  may  be  agreed  that  the 
aim  of  all  this  was  a  national  solidarity  which  almost  ignored  the 
individual,  and  it  seems  that  Moses  had  the  prevention  of  in- 
equality of  wealth  in  mind  in  making  his  laws ;  but  that  does 
not  make  Socialism,  and  is  certainly  very  far  from  social  de- 
mocracy. Had  the  Mosaic  law  been  carried  out,  the  result  would 
rather  have  been,  perhaps,  like  a  sort  of  periodically  enforced 
communism. 

It  remained  for  Christianity  to  put  the  Old  Testament  ideals 
on  a  broader  and  more  democratic  basis.  Moses,  by  limiting 
blood  revenge  and  legislating  mercy  and  charity,  took  a  step  in 
advance ;  but  he  only  prepared  the  way  for  the  Golden  Rule. 
Similarly  the  Old-Testament  steps  toward  equality  of  property 
lay  back  of  the  more  humane  and  democratic  ideals  of  community 
held  up  by  Christ  and  his  disciples. 

Enough  has  been  said  to  give  some  more  positive  and  compre- 
hensive idea  of  the  economic  thought  of  the  Hebrews  and  Hindus 
than  is  generally  had ;  and  in  any  case  Cossa's  dictum  that  Ori- 
ental economic  thought  "can  all  be  reduced  to  a  few  moral  pre- 
cepts about  the  virtue  of  industry,  temperance,  and  economy, 
and^about  the  duty  of  only  desiring  wealth  for  the  purpose  of 
worship  and  charity,"  is  clearly  too  narrow.  It  can  only  be  so 
reduced  at  the  expense  of  truth. 

1  Renan,  History  of  the  People  of  Israel,  Chap.  XVI. 


CHAPTER   IV 

THE    ECONOMIC    THOUGHT    OF    THE    ATHENIAN 
PHILOSOPHERS  l 

IT  is  natural  to  pass  from  the  Orient  to  Greece.  Both  by  geog- 
raphy and  by  the  character  of  her  people,  Greece  has  been  closely 
related  to  Asiatic  civilization.  However  much  scholars  differ  as 
to  the  extent  of  the  contributions  made  by  Asia  and  Africa  to 
Greek  culture,  it  may  safely  be  said  that  such  contributions  were 
considerable.  But,  while  certain  similarities  exist,  there  are  im- 
portant differences ;  and  so  directly  essential  has  been  the  part 
played  by  Greek  ideas  in  the  development  of  modern  thought 
that  they  demand  no  small  share  of  attention. 

Origin  of  the  State ;  First  Economic  Interpretation  of  History. 
—  One  of  the  striking  facts  about  the  philosophy  of  certain  Greek 
thinkers  is  that  it  rests  upon  what  may  be  truly  called  an  eco- 
nomic interpretation  of  history.  To  be  sure,  the  Athenian  phi- 
losopher's conception  of  history  was  imperfect,  and  by  an  eco- 
nomic interpretation  is  not  meant  a  materialistic  one ;  but  with 
these  modifications,  the  statement  is  broadly  true.  Witness  the 
following  from  Plato :  "A  State,  .  .  .  arises,  as  I  conceive, 
out  of  the  needs  of  mankind ;  no  one  is  self -sufficing,  but  all  of  us 
have  many  wants.  .  .  .  Then,  as  we  have  many  wants,  and 
many  persons  are  needed  to  supply  them,  one  takes  a  helper  for 

1  Some  of  the  most  useful  special  references  are :  Boeckh,  A.,  The  Pub- 
lic Economy  of  the  Athenians;  Loos,  I.  A.,  Studies  in  the  Politics  of  Aristotle 
and  the  Republic  of  Plato  (Bui.  of  the  University  of  Iowa,  1899)  >  Ashley, 
"  Aristotle's  Doctrine  of  Barter,"  Quarterly  Journal  of  Economics,  Novem- 
ber, 1895 ;  Simey,  "  Economic  Theory  among  the  Greeks  and  Romans," 
Econ.  Rev.,  1900;  Oncken,  Die  Staatslehre  des  Aristoteles,  1870-1875; 
Marigny,  Histoire  de  V  Economic  Politique  des  Anciens  Pen  pies;  Dubois, 
Prttis  de  I' Histoire  des  Doct.  Econ.,  Chap.  I,  and  bibliography  there  pre- 
sented. The  chief  sources  are  the  Politics  and  Ethics  of  Aristotle,  and 
Plato's  Republic  and  Laws;  and  these  works  are  available  in  the  excel- 
lent translations  by  Jowett  and  by  Welldon. 

39" 


40  ECONOMIC  THOUGHT 

one  purpose  and  another  for  another ;  and  when  these  partners 
and  helpers  are  gathered  together  in  one  habitation  the  body  of 
inhabitants  is  termed  a  State  .  .  .  And  they  exchange  with  one 
another,  and  one  gives,  and  another  receives,  under  the  idea  that 
the  exchange  will  be  for  their  good."  l  The  origin  of  the  state, 
then,  is  traced  to  the  lack  of  individual  self-sufficiency  in  the 
satisfaction  of  wants,  and  to  the  advantage  of  specialization  and 
exchange.  Such  reasoning  indicates  an  important  step  toward 
the  development  of  economic  analysis. 

On  this  point,  Aristotle's  doctrine  is  less  purely  rational.  He 
assumes  that  an  impulse  to  political  association  is  innate  in  all 
men :  "  Man  is  naturally  a  political  animal."  The  genesis  of  the 
state  is  found  in  the  household,  which,  in  its  turn,  rests  upon 
the  inability  of  male  and  female  to  exist  independently,  and  upon 
the  inequality  among  men  which  leads  to  slavery.  The  house- 
hold is  "  the  association  naturally  formed  for  the  supply  of 
everyday  wants."  2  Then  came  the  village,  and  finally  the  state : 
"  Lastly,  the  association  composed  of  several  villages  in  its 
complete  form  is  the  State,  in  which  the  goal  of  full  independence 
may  be  said  to  be  first  attained."  The  state  is  formed  to  make 
life  possible. 

Division  of  Labor.  —  Plato's  discussion  of  specialization  and 
exchange  clearly  suggests  the  idea  of  "  division  of  labor."  In- 
deed, the  Greek  philosophers'  concept  of  division  of  labor,  while 
crude,  is  the  ultimate  father  of  the  later  discussions  of  Hutcheson, 
Hume,  and  Adam  Smith.  When,  however,  Plato  says :  ".  .  .  we 
must  infer  that  all  things  are  produced  more  plentifully  and 
easily  and  of  a  better  quality  when  one  man  does  one  thing  which 
is  natural  to  him  and  does  it  at  the  right  time,  and  leaves  other 
things,"3  he  does  not  have  in  mind  the  complex  modern  questions 
connected  with  division  of  labor.  The  Greek  philosophers  refer 
rather  to  a  simple  separation  of  employments,  and  their  treat- 
ment lacks  the  significance  that  comes  from  the  connection  of  the 
subject  with  a  system  of  economics. 

1  Republic,  Bk.  II,  pp.  369  ff.  Ed.  Steph. ;  Laws,  Bk.  Ill,  pp.  678  ff. 
*  Politics,  Bk.  I,  Chap.  II  (Welldon,  p.  3). 
8  Republic,  Bk.  II,  p.  370. 


GREEK  ECONOMIC  THOUGHT  41 

Their  ideas  concerning  division  of  labor  rested  ultimately  upon 
an  analysis  of  human  wants.  The  three  primary  wants  of  man, 
said  they,  are  for  food,  clothing,  and  shelter.  Therefore,  there 
are  at  least  husbandmen,  weavers  and  shoemakers,  and  house 
builders;  while  smiths  and  carpenters  come  into  existence  to 
relieve  the  husbandmen.  Exchange  among  these  makes  a  mer- 
chant class  necessary.  Few  places,  moreover,  are  self-sufficient, 
hence  foreign  traders  and  sailors  find  employment.  Meanwhile, 
another  group,  consisting  of  hirelings  and  slaves,  arises.  The 
function  of  the  retail  trades  is  validated  on  the  ground  that 
without  them  the  seller  might  be  compelled  to  wait  or  to  depart 
with  his  goods  undisposed  of. 

The  Social  Viewpoint  Taken.  —  In  emphasizing  the  ad- 
vantage of  division  of  labor,  society  or  the  state  was  thought  of 
primarily  rather  than  the  individual,  and  the  conclusion  may  be 
drawn  that,  in  general,  Athenian  thinkers  stressed  the  solidarity 
of  society.  They  by  no  means  overlooked  the  interests  of  the 
individual,  but  always  the  individual  was  primarily  the  citizen,  a 
citizen  who,  on  the  one  hand,  depended  upon  the  state  for  his 
highest  development,  and  who,  on  the  other  hand,  by  his  develop- 
ment promoted  the  highest  good  of  the  whole.  They  exalted 
the  state  above  the  man ;  civilized  man,  they  reasoned,  is  not  to 
be  thought  of  outside  the  state ;  without  the  state  one  is  either 
more  or  less  than  a  man.  Aristotle's  reasoning  is  in  point: 
"  Thus  the  state  is  by  nature  clearly  prior  to  the  family  and  to 
the  individual,  since  the  whole  is  of  necessity  prior  to  the  part ; 
for  example,  if  the  whole  body  be  destroyed,  there  will  be  no 
foot  or  hand,  except  in  an  equivocal  sense,  as  we  might  speak  of  a 
stone  hand.  .  .  .  The  proof  that  the  state  is  a  creation  of  nature 
and  prior  to  the  individual  is  that  the  individual,  when  isolated, 
is  not  self-sufficing ;  and  therefore  he  is  like  a  part  in  relation 
to  the  whole."  l 

Plato,  in  accord  with  his  highly  idealistic  and  communistic 
beliefs,  puts  the  case  more  forcefully :  You  are  to  regard  yourself 
and  possessions  "  not  as  belonging  to  yourselves,  but  as  belong- 
ing to  your  whole  family,  both  past  and  future,  and  yet  more  do  I 
1  Politics,  Bk.  I,  ch.  ii. 


42  ECONOMIC  THOUGHT 

regard  both  family  and  possessions  as  belonging  to  the  state; 
wherefore  ...  I  will  legislate  with  a  view  to  the  whole,  consider- 
ing what  is  best  both  for  the  state  and  for  the  family,  esteeming  as 
I  ought  the  feelings  of  an  individual  at  a  lower  rate.  .  .  ." 1 

Indeed,  regulations  similar  to  those  found  among  more  eastern 
peoples  were  not  lacking  in  Athens.  For  example,  there  were 
inspectors  of  weights  and  measures,  inspectors  of  goods  placed  on 
sale,  harbor  overseers,  etc.  The  price  of  salt  was  regulated ;  the 
exportation  of  wheat  was  forbidden ;  and  the  slaughter  of  sheep 
and  goats  during  lambing  time  was  not  allowed.  The  state  also 
pensioned  those  crippled  in  war,  and  in  some  cases  gave  alms  to 
the  destitute. 

Inheritance.  —  As  further  evidence  of  this  conception  of  so- 
ciety, and  as  an  indication  of  the  static  character  of  the  ideal, 
Plato's  plan  for  regulating  inheritance2  and  population3  is  of  in- 
terest. In  his  ideal  state  each  was  to  have  an  inalienable  allot- 
ment of  land.  Each  was  to  choose  a  single  heir,  adopting  a  son 
if  he  had  no  children,  or  choosing  a  husband  for  his  daughter,  if 
male  issue  were  lacking.  Other  property  might  be  distributed 
among  his  remaining  children.4  Clearly  one  object  was  to  keep 
the  family  intact  and  to  preserve  its  property  to  it ;  and  these 
measures  remind  one  of  those  adopted  by  the  Hebrew  lawgivers. 

Plato  charges  ancient  legislators  with  being  too  good-natured 
in  allowing  a  man  to  dispose  of  his  property  by  will :  "  .  .  .  they 
were  afraid  of  the  testator's  reproaches,  and  so  they  passed  a  law 
to  the  effect  that  a  man  should  be  allowed  to  dispose  of  his  prop- 
erty in  all  respects  as  he  liked ;  but  you  and  I,  if  I  am  not  mis- 
taken, will  have  something  better  to  say  to  our  departing  citi- 
zens," 8  and  he  goes  on  to  express  his  belief  that  the  interest  of 
the  state  should  predominate. 

All  this  is  surely  suggestive  as  to  present-day  questions  of 
regulating  inheritances. 

1  Jowett's  Plato,  Vol.  V,  p.  310. 

2  Laws,  Bk.  V,  p.  740;  Bk.  XI,  pp.  923,  924.    (Ed.  Steph.)  > 
8  Republic,  Bk.  V,  pp.  460,  461.     (Ed.  Steph.) 

4  This  was  in  Plato's  second-best  state,  where  communism  of  wives  and 
children  did  not  obtain.  5  Jowett's  Plato,  Vol.  V,  pp.  310,  311. 


GREEK  ECONOMIC  THOUGHT  43 

Population.  —  But  the  question  arises,  what  was  to  become 
of  children  other  than  those  who  were  heirs  to  the  father's  lot  ? 
In  answer,  Plato  provided  for  a  careful  regulation  of  popula- 
tion. This  was  necessary  to  preserve  the  social  equilibrium. 
His  state  was  to  consist  of  a  limited  number  of  citizens  (5040). 
If  the  number  began  to  decrease,  prizes  might  be  offered  to  en- 
courage a  growth  of  population ;  if  there  were  an  excess,  colonies 
would  be  established.  In  this  way  that  precise  regulation  of  life 
contemplated  by  the  philosopher  might  be  rendered  possible. 

Thus  the  thought  of  the  leading  Athenian  philosophers  was 
hardly  individualistic,  though  they  went  further  than  the  Orien- 
tals in  analyzing  the  state  (society)  into  its  component  parts; 
for,  like  their  government,  the  spirit  of  their  philosophy  was  some- 
what more  democratic,  and  they  saw  that  the  welfare  of  the  state 
depended  upon  that  of  the  individual. 

Communism.  —  Probably  the  most  discussed  phase  of  that 
part  of  Greek  philosophy  which  has  distinct  economic  bearing  is 
communism.  As  this  subject  has  a  close  relationship  to  the  ques- 
tion of  social  solidarity  and  individualism,  it  is  naturally  men- 
tioned in  this  connection. 

Plato  and  Aristotle  differed  greatly  in  their  ideas  as  to  the 
scope  to  be  given  communism.  Plato  desires  a  complete  com- 
munism, embracing  not  only  property,  but  also  wives  and  children. 
He  does  not  give  the  details  of  his  scheme  for  communism  in  prop- 
erty. He  makes  it  clear,  however,  that  his  object  was  to  pro- 
mote harmony  by  removing  the  ground  for  civil  suits  and  uniting 
all  citizens  by  common  interests.  His  ideal  state  is  charac- 
terized by  a  community  of  wives  and  children,  partly  with  the 
aim  of  diminishing  discord  and  jealousy,  partly  with  the  idea  of 
eugenics  and  control  of  population.  "  The  children  of  the  in- 
ferior, or  of  the  better  when  they  chance  to  be  deformed,  will  be 
put  away  in  some  mysterious,  unknown  place,  as  they  should 
be.  ...  This  must  be  done  if  the  breed  of  guardians  is  to  be 
kept  pure." 

f  Aristotle  was  entirely  opposed  to  Plato's  communism  of  wives, 
and  did  not  go  any  great  way  with  him  as  to  property.  His 
arguments  against  communism  are  classics. 


44  ECONOMIC  THOUGHT 

"Next  let  us  consider  what  should  be  our  arrangements  about 
property :  should  the  citizens  of  the  perfect  state  have  their  possessions 
in  common  or  not?  This  question  may  be  discussed  separately 
from  the  enactments  about  women  and  children.  Even  supposing 
that  the  women  and  children  belong  to  individuals,  according  to  the 
custom  which  is  at  present  universal,  may  there  not  be  an  advantage 
in  having  and  using  possessions  in  common?  Three  cases  are  pos- 
sible: (i)  The  soil  maybe  appropriated,  but  the  produce  may  be 
thrown  for  consumption  into  the  common  stock ;  and  this  is  the  practice 
of  some  nations.  Or  (2)  the  soil  may  be  common,  and  may  be  culti- 
vated in  common,  but  the  produce  divided  among  individuals  for 
their  private  use ;  this  is  a  form  of  common  property  which  is  said  to 
exist  among  certain  barbarians.  Or  (3)  the  soil  and  the  produce  may 
be  alike  common. 

"  When  the  husbandmen  are  not  the  owners,  the  case  will  be  different 
and  easier  to  deal  with;  but  when  they  till  the  ground  themselves 
the  question  of  ownership  will  give  a  world  of  trouble.  If  they  do  not 
share  equally  in  enjoyments  and  toils,  those  who  labour  much  and  get 
little  will  necessarily  complain  of  those  who  labour  little  and  receive 
or  consume  much.  There  is  always  a  difficulty  in  men  living  together 
and  having  things  in  common,  but  especially  in  their  having  common 
property.  The  partnerships  of  fellow-travellers  are  an  example  to  the 
point ;  for  they  generally  fall  out  by  the  way  and  quarrel  about  any 
trifle  which  turns  up.  So  with  servants:  we  are  most  liable  to  take 
offence  at  those  with  whom  we  most  frequently  come  into  contact  in 
daily  life. 

"These  are  only  some  of  the  disadvantages  which  attend  the  com- 
munity of  property;  the  present  arrangement,  if  improved,  as  it 
might  be  by  good  customs  and  laws,  would  be  far  better,  and  would 
have  the  advantages  of  both  systems.  Property  should  be  in  a  certain 
sense  common,  but,  as  a  general  rule,  private;  for,  when  every  one 
has  a  distinct  interest,  men  will  not  complain  of  one  another,  and  they 
will  make  more  progress,  because  every  one  will  be  attending  to  his 
own  business ;  and  yet  among  the  good,  and  in  respect  of  use, '  Friends,' 
as  the  proverb  says,  'will  have  all  things  common.'  Even  now  there 
are  traces  of  such  a  principle,  showing  that  it  is  not  impracticable, 
but,  in  well-ordered  states,  exists  already  to  a  certain  extent  and  may 
be  carried  further.  For,  although  every  man  has  his  own  property, 
some  things  he  will  place  at  the  disposal  of  his  friends,  while  of  others 
he  shares  the  use  with  them.  The  Lacedaemonians,  for  example,  use 


GREEK  ECONOMIC  THOUGHT  45 

one  another's  slaves,  and  horses,  and  dogs,  as  if  they  were  their  own ; 
and  when  they  happen  to  be  in  the  country,  they  appropriate  in  the 
fields  whatever  provisions  they  want.  It  is  clearly  better  that  prop- 
erty should  be  private,  but  the  use  of  it  common;  and  the  special 
business  of  the  legislator  is  to  create  in  men  this  benevolent  disposition. 
Again,  how  immeasurably  greater  is  the  pleasure,  when  a  man  feels  a 
thing  to  be  his  own ;  for  the  love  of  self  is  a  feeling  implanted  by  nature 
and  not  given  in  vain,  although  selfishness  is  rightly  censured ;  this, 
however,  is  not  the  mere  love  of  self,  but  the  love  of  self  in  excess,  like 
the  miser's  love  of  money ;  for  all,  or  almost  all,  men  love  money,  and 
other  such  objects  in  a  measure.  And  further,  there  is  the  greatest 
pleasure  in  doing  a  kindness  or  service  to  friends  or  guests  or  com- 
panions, which  can  only  be  rendered  when  a  man  has  private  property. 
The  advantage  is  lost  by  the  excessive  unification  of  the  state.  Two 
virtues  are  annihilated  in  such  a  state ;  first,  temperance  towards 
women  (for  it  is  an  honourable  action  to  abstain  from  another's  wife 
for  temperance'  sake) ;  secondly,  liberality  in  the  matter  of  property."  * 

Aristotle,  it  will  be  observed,  although  opposing  Plato's  ideas, 
did  not  rush  to  the  opposite  extremes.  Some  things  are  to  be 
private;  some  to  be  held  in  common.  He  desired  that  more 
things  should  be  common  than  there  then  were,  and  protested 
against  the  excessive  individualism  of  the  Greeks.  He  advo- 
cated common  meals,  and  especially  noteworthy  is  his  wish  for 
a  certain  community  in  the  use  of  property  along  with  its  private 
ownership. 

It  must  not  for  a  moment  be  fancied  that  these  ancient  phi- 
losophers thought  of  communism  as  implying  any  general  democ- 
racy. Quite  the  reverse.  There  were  three  classes  of  men  fash- 
ioned in  the  bowels  of  the  earth,  one  of  gold,  another  of  silver,  the 
third  of  iron  or  copper.  These  were,  respectively,  the  philoso- 
phers or  guardians,  the  warriors  or  auxiliaries,  and  the  artisans 
and  tradesmen.  Communism  was  to  be  applied  to  the  first  two 
alone.  It  was  an  aristocratic  communism. 

Scope  and  Classification  of  Aristotle's  Economic  Thought.  — 

The  nearest  approach  made  by  Greek  philosophy  to  developing 

a  distinct  theory  of  economics  came  in  discussing  the  elements  of 

household  management.     Here  a  distinction  was  drawn  between 

1  Politics,  Bk.  II,  chap.  V. 


ECONOMIC  THOUGHT 


economics  (oikonomik)  and  chrematistics  (chrematistik) ;  the 
former  embraces  chiefly  wealth  consumption  in  the  satisfaction 
of  wants,  and  the  provision  of  those  necessary  and  useful  com- 
modities which  can  be  stored  to  meet  those  wants;  the  latter 
deals  with  wealth-getting,  including  money-making  and  exchange. 
Concerning  the  latter,  Aristotle  says,  "  And  there  is  another  ele- 
ment of  a  household,  the  so-called  art  of  money-making  (or 
finance)  which,  according  to  some,  is  identical  with  household 
management,  according  to  others,  a  principal  part  of  it."  l 

There  are  two  kinds  of 
chrematistics :  the  natu- 
ral and  the  unnatural. 
Thus  the  first  simple  bar- 
ter by  which  things  are 
given  in  exchange  for  what 
one  wants  "  is  not  contrary 
to  nature,  but  is  needed 
for  the  satisfaction  of 
men's  natural  wants  "  ; 2 
but  "  retail  trade  is  not 
a  natural  part  of  the 
art  of  money-making." 2 
Or,  again,  husbandry  and 
stock-raising  make  the 
"  true  or  proper  art  of 
money-making,"  while  the 

other  consists  in  exchange.3 

,  „ 
It    is    the      natural       or 

"proper"    branch    of 

chrematistics  alone  which  should  be  included  in  economics  or 
household  management  (Wirtschaft).4  Thus  Aristotle's  clas- 
sification might  be  represented  by  the  above  diagram. 

Closely  connected  with  the  preceding  analysis  is  the  dis- 
tinction between  the  natural  or  proper  and  the  unnatural  or 
improper  uses  of  a  thing.  "  Of  everything  which  we  possess 


(NATURAL) 
ECONOMICS 

(Household  Management) 


(Wealth-Getting} 

CHREMATISTICS 

(ARTIFICIAL) 


1  Aristotle,  Politics,  Bk.  I,  chap.  3. 
*  Ibid.,  Politics,  Bk.  I,  chap.  9. 


*  Ibid.,  Bk.  I,  chap.  n. 

*  Ibid.,  Bk.  I,  chap.  8. 


GREEK  ECONOMIC  THOUGHT  47 

there  are  two  uses :  both  belong  to  the  thing  as  such,  but  not 
in  the  same  manner,  for  one  is  the  proper,  the  other  the  im- 
proper or  secondary  use  of  it.  For  example,  a  shoe  is  used  for 
wear,  and  is  used  for  exchange ;  both  are  uses  of  the  shoe."  1 
This  distinction  rests  upon  Aristotle's  notion  of  exchange,  which, 
in  its  turn,  is  founded  on  the  idea  that  there  is  a  certain  con- 
sumption which  is  sufficient  for  a  proper  life ;  for,  when  he  says 
that  retail  trade  is  not  a  "  natural  "  part  of  money-making,  he 
adds  that  "  had  it  been  so,  men  would  have  ceased  to  exchange 
when  they  had  enough."  In  other  words,  natural  chrematistics 
concerns  the  satisfaction  of  natural  or  proper  wants  by  "  natu- 
ral "  or  "  proper  "  or  "  primary"  uses.  This  idea  clearly  suggests 
later  distinctions  between  value  in  use  and  value  in  exchange. 
Its  consciously  ethical  content,  however,  is  absent  from  much 
of  the  later  usage.  In  the  same  idea,  a  trace  of  the  notion  held 
by  some  later  economists  (the  Physiocrats)  may  be  distinguished, 
namely,  the  notion  that  extractive  industries  are  the  only  ones 
which  are  productive.  One  could  easily  get  the  idea  from 
Aristotle  that  the  growing,  or  digging  up,  or  catching  of  things 
which  satisfy  the  more  elemental  wants  in  the  simplest  way,  is 
more  productive  than  the  elaboration  of  these  things  by  artisans 
or  their  exchange  by  merchants,  —  that  the  latter  occupations 
do  not  add  to  the  real  wealth  of  the  state. 

Value.  —  The  idea  of  value  received  little  attention,  and  that 
little  was  from  the  viewpoint  of  ethics  or  justice.  Plato  says  that 
according  to  law  a  man  "  should  not  attempt  to  raise  the  price, 
but  simply  ask  the  value,"  2  implying  that  value  is  an  absolute 
quality  inherent  in  the  thing.  This,  however,  is  but  a  rudi- 
mentary discussion  of  the  subject.  Aristotle  goes  further. 
His  notion  of  value  is  clearly  subjective,  and  is  based  upon 
the  usefulness  of  the  commodity  concerned.3  All  things 
which  are  exchanged  must  be  comparable  through  some 
standard  of  measure,  and  this  standard  he  finds  in  man's 
wants :  "In  the  truest  and  most  real  sense,  this  standard  lies  hi 
wants,  which  is  the  basis  of  all  association  among  men."  An 

1  Ibid.,  Bk.  I,  chap.  9.  »  Laws,  Bk.  XI,  p.  921  (Ed.  Steph.). 

s  See  Politics,  Bk.  I,  chap.  9 ;  Ethics,  V,  8. 


48  ECONOMIC  THOUGHT 

exchange  is  just  when  each  gets  exactly  as  much  as  he  gives  the 
other ;  yet  this  equality  does  not  mean  equal  costs,  but  equal 
wants.  If  men  want  the  cobbler's  product  more  than  the 
husbandman's,  more  grain  must  be  given  for  shoes.  Money  is 
the  medium  which  makes  wants  commensurable. 

Money  and  Interest.  —  As  regards  that  particular  form  of 
wealth  known  as  money,  the  teaching  of  the  Greeks  has  been  of 
signal  importance  in  the  history  of  economic  thought.  In  gen- 
eral, they  saw  and  explained  the  necessity  for  money,  and 
recognized  a  part  of  its  economic  function.  Aristotle  is 
especially  explicit.  He  remarks  that  "  as  the  benefits  of  com- 
merce were  more  widely  extended  .  .  .,  the  use  of  a  currency 
was  an  indispensable  device.  As  the  necessaries  of  nature 
were  not  all  easily  portable,  people  agreed  for  purposes  of 
barter  mutually  to  give  and  receive  some  article,  which,  while 
it  was  itself  a  commodity,  was  practically  easy  to  handle  in 
the  business  of  life,  some  such  article  as  iron  or  silver,  which  was 
at  first  defined  simply  by  size  and  weight ;  although  finally  they 
went  further  and  set  a  stamp  upon  every  coin  to  relieve  them 
from  the  trouble  of  weighing  it.  .  .  ."*  And  he  goes  on  to  dis- 
tinguish between  money  and  wealth,  referring  to  the  fable  of 
King  Midas.  Xenophon  is  equally  clear  in  distinguishing 
between  money  and  wealth.2 

Plato  would  have  had  no  gold  nor  silver  for  the  private  man, 
but  only  domestic  coins  to  be  used  in  payment  of  hirelings  and 
the  like ; 3  but  he  thought  that  the  state  should  have  a  common 
Hellenic  currency  for  the  use  of  embassies,  expeditions,  and 
journeys. 

With  all  this,  however,  the  thought  of  these  men  was  tainted 
with  error.  They  virtually  regarded  money  as  nothing  but  a 
medium  of  exchange,  and,  as  such,  they  denied  the  productivity 
of  loans  of  it.  A  piece  of  money  cannot  beget  another  piece,  was 
the  doctrine  of  Aristotle,  and  no  economic  idea  of  his  had  more 
lasting  effects.  The  obvious  conclusion  was  that  interest  is 

1  Politics,  Bk.  I,  chap.  9  (Welldon). 

1  Revenues  of  Athens. 

1  Laws,  Bk.  V,  p.  742  (jowett,  The  Dialogues  of  Plato,  Vol.  V,  p.  124). 


GREEK  ECONOMIC  THOUGHT  49 

unjust.1  Plato,  too,  seems  to  have  thought  that  no  interest 
should  be  given  nor  even  the  principal  of  a  debt  be  repaid.2 

It  must  not  be  supposed,  however,  that  this  view  of  interest 
which  seems  so  strange  to  us  owed  its  existence  entirely  to  the 
inferior  insight  of  the  ancients.  It  is  to  be  explained  largely  by 
economic  conditions.  In  Athens  the  circulation  of  capital  was 
inconsiderable,  and  money  was  not  lent  for  productive  purposes 
as  often  as  for  the  purpose  of  relieving  distress.  If  to-day  loans 
were  chiefly  made  to  embarrassed  friends  or  neighbors  to  be  used 
in  alleviating  distress  in  matters  of  consumption,  we  too  would 
undoubtedly  regard  interest  in  a  different  light.  The  modern 
theory  of  interest  is  based  upon  loans  for  productive  investment.3 

Another  erroneous  monetary  idea  which  was  held  by  Xeno- 
phon,  at  least,  was  that  the  value  of  silver  is  absolutely  fixed 
regardless  of  supply.  Aristotle,  however,  recognized  that  money 
is  subject  to  the  same  law  as  other  things  and  that  its  value  is 
liable  to  change,  although  it  tends  to  be  more  constant.4 

Industry  and  the  Various  Occupations.  —  Like  the  Oriental 
lawgivers,  Athenian  philosophers  favored  some  branches  of  in- 
dustry and  regarded  others  with  disapprobation.  Agriculture  was 
considered  most  highly.  "  But  strictly  speaking,"  writes  Aris- 
totle, ".  .  .  .  the  means  of  life  must  be  provided  beforehand 
by  nature ;  for  the  business  of  nature  is  to  furnish  food  to  that 
which  is  born,  and  the  food  of  the  offspring  always  remains  over 
in  the  parent.  Wherefore,  the  art  of  making  money  out  of  fruits 
and  animals  is  always  natural."  Husbandry  and  stock-raising 
were  the  natural  or  proper  arts.  Exchange,  including  commerce, 
usury,  and  services  for  hire,  were  not  natural.  Mining  and  lum- 
bering lay  midway  between.8 

Plato  thought  that  the  precious  metals  ought  not  to  be  allowed 

1  Politics,  Bk.  I,  chap.  10. 

2  Laws,  Bk.  V,  p.  742.    This  may  be  compared  with  the  Hebrew  idea  of 
a  loan  —  see  above,  pp.  25  f. 

3  Cf.  Schonberg's  Handbuch  der  politischen  Oekonomie  (Tubingen,  1882), 
Bd.  I,  S.  60. 

4  Ethics,  Bk.  V,  chap.  8. 

5  Aristotle,  Politics,  Bk.  I,  chaps.  10  and  n. 


50  ECONOMIC  THOUGHT 

in  his  state,  "  nor  much  of  the  vulgar  sort  of  trade  which  is  car. 
ried  on  by  lending  money,  or  rearing  the  meaner  kinds  of  live- 
stock ;  but  only  the  produce  of  agriculture,  and  only  so  much  of 
this  as  will  not  compel  us  in  pursuing  it  to  neglect  that  for  the 
sake  of  which  riches  exist,  —  I  mean,  soul  and  body."  l 

Riches.  —  In  their  attitude  toward  riches  these  Greek  think- 
ers are  notable  for  their  poise.  Great  stores  of  wealth  were  de- 
cried by  them ;  as  was  also  poverty.  Clearly  recognizing  the  use- 
fulness of  an  abundance  of  material  things  as  a  means,  they  yet 
sought  the  happy  medium.  Riches  in  excess  were  disfavored  on 
two  grounds.  As  a  matter  of  economy,  it  was  argued  that  they 
decreased  efficiency  in  production.  In  a  celebrated  bit  of  dia- 
logue Plato  develops  the  idea  thus :  — 

"  There  seem  to  be  two  causes  of  the  deterioration  of  the  arts. 

"  What  are  they? 

"  Wealth,  I  said,  and  poverty. 

"  How  do  they  act? 

"  The  process  is  as  follows :  When  a  potter  becomes  rich,  will 
he,  think  you,  any  longer  take  the  same  pains  with  his  art  ? 

"  Certainly  not. 

"  He  will  grow  more  and  more  indolent  and  careless  ? 

"  Very  true. 

"  And  the  result  will  be  that  he  becomes  a  worse  potter? 

"  Yes ;  he  greatly  deteriorates. 

"  But,  on  the  other  hand,  if  he  has  no  money,  and  cannot  pro- 
vide himself  with  tools  or  instruments,  he  will  not  work  equally 
well  himself,  nor  will  he  teach  his  sons  or  apprentices  to  work 
equally  well."  2 

A  second  reason  for  opposing  extreme  riches  was  ethical. 
Plato  argues  that  great  riches  and  happiness  are  incompatible ; 
for  a  rich  man  cannot  be  a  perfectly  good  man,  as  part  of  his 
wealth  must  necessarily  be  acquired  and  expended  unjustly.3 
The  reasoning  is  of  much  interest  in  connection  with  present-day 
ethics  of  wealth,  and  must  be  quoted  to  be  appreciated. 

1  Pkto,  taws,  Bk.  V,  743  (Jowett,  The  Dialogues  of  Plato,  Vol.  V,  p.  126). 

2  Republic,  Bk.  IV,  p.  421  (Jowett's  Plato,  Vol.  Ill,  pp.  109-110, 119-121). 
*  Ibid.,  Bk.  V,  742-744  (Jowett,  Vol.  V,  pp.  125,  126). 


GREEK  ECONOMIC  THOUGHT  51 

"The  citizen  must  indeed  be  happy  and  good,  and  the  legislator 
will  seek  to  make  him  so ;  but  very  rich  and  very  good  at  the  same 
time  he  cannot  be,  not,  at  least,  in  the  sense  in  which  the  many  speak 
of  riches.  For  they  mean  by  'the  rich'  the  few  who  have  the  most 
valuable  possessions,  although  the  owner  of  them  may  quite  well  be  a 
rogue.  And  if  this  is  true,  I  can  never  assent  to  the  doctrine  that  the 
rich  man  will  be  happy  —  he  must  be  good  as  well  as  rich.  And  good 
in  a  high  degree,  and  rich  in  a  high  degree  at  the  same  time,  he  cannot 
be.  Some  one  will  ask,  why  not  ?  And  we  shall  answer  —  Because 
acquisitions  which  come  from  sources  which  are  just  and  unjust 
indifferently  are  more  than  double  those  which  come  from  just  sources 
only ;  and  the  sums  which  are  expended  neither  honourably  nor  dis- 
gracefully, are  only  half  as  great  as  those  which  are  expended  honour- 
ably and  on  honourable  purposes.  Thus,  if  the  one  acquires  double 
and  spends  half,  the  other  who  is  in  the  opposite  case  and  is  a  good  man 
cannot  possibly  be  wealthier  than  he.  The  first  —  I  am  speaking  of 
the  saver  and  not  of  the  spender  —  is  not  always  bad ;  he  may  indeed 
in  some  cases  be  utterly  bad,  but,  as  I  was  saying,  a  good  man  he  never 
is.  For  he  who  receives  money  unjustly  as  well  as  justly,  and  spends 
neither  justly  nor  unjustly,  will  be  a  rich  man  if  he  be  also  thrifty. 
On  the  other  hand,  the  utterly  bad  is  in  general  profligate,  and  there- 
fore, very  poor ;  while  he  who  spends  on  noble  objects,  and  acquires 
wealth  by  just  means  only,  can  hardly  be  remarkable  for  riches,  any 
more  than  he  can  be  very  poor.  Our  statement,  then,  is  true,  that 
the  very  rich  are  not  good,  and,  if  they  are  not  good,  they  are  not 
happy." 

Aristotle  also  opposed  extremes,  though,  quite  consistently 
with  his  views  as  to  communism,  he  was  not  opposed  to  reason- 
able inequalities.  He  dreaded  more  the  encroachments  of  the 
rich  than  those  of  the  people.  "  Many  .  .  .  make  a  mistake," 
he  says,  "  not  only  in  giving  too  much  power  to  the  rich,  but  in 
attempting  to  overreach  the  people.  There  comes  a  time  when 
out  of  a  false  good  there  arises  a  true  evil,  since  the  encroach- 
ments of  the  rich  are  more  destructive  to  the  State  than  those  of 
the  people."  l  On  the  other  hand  he  remarks,  "  Poverty  is  the 
parent  of  revolution  and  crime."  2 

1  Jowett,  The  Politics  of  Aristotle,  p.  131  (Politics,  Bk.  IV,  12,  6).     See 
also  ibid.,  p.  45  (II,  7,  13). 
«  Ibid.,  p.  40  (II,  6,  13). 


52  ECONOMIC  THOUGHT 

Ethics  Dominant.  —  It  is  to  be  emphasized  that  the  ideal  of  the 
Greek  thinkers  was  highly  ethical.  To  be  happy  one  must  be 
good,  was  a  dominant  note,  and  the  interests  of  the  soul  were 
placed  foremost.  "  For  there  are  in  all  three  things,"  Plato  says,1 
"  about  which  every  man  has  an  interest ;  and  the  interest  about 
money,  when  rightly  regarded,  is  the  third  and  lowest  of  them : 
midway  comes  the  interest  of  the  body ;  and,  first  of  all,  that  of 
the  soul ;  and  the  state  which  we  are  describing  will  have  been 
rightly  constituted  if  it  ordains  honours  according  to  this  scale." 
And  Aristotle's  dictum  is :  "  But  a  state  exists  for  the  sake  of  a 
good  life  and  not  for  the  sake  of  life  only."  2 

If  one  could  conceive  of  Plato  making  a  definition  of  eco- 
nomics, one  might  imagine  it  would  run  somewhat  as  follows : 
"  Economics  is  the  science  which  deals  with  the  satisfaction  of 
human  wants  through  exchange,  seeking  so  to  regulate  the  indus- 
tries of  the  state  as  to  make  its  citizens  good  and  happy  and  so 
promote  the  highest  well-being  of  the  whole."  That  would  make 
it  an  applied  science,  in  which  ethical  aims  would  play  a  great 
part. 

Contrast  with  Hebrews  and  Hindus.  —  As  already  observed, 
there  are  important  differences  between  the  economic  ideas  of 
the  Hebrews,  Hindus,  and  other  Oriental  peoples,  and  those  of 
the  Athenian  philosophers.  They  were  similar  in  emphasizing 
the  state,  and  the  ethical  viewpoint.  Neither  differentiated 
economics  from  politics  or  morals.  Both  were  conservative 
and  undemocratic.  Moreover,  with  both,  agriculture  was  the 
only  industry  in  very  good  repute.  But  the  Greeks  were  more 
concerned  with  the  individual,  going  further  in  the  analysis  of 
the  state  into  its  citizens.  They  were,  too,  possessed  of  some 
small  degree  of  historic  method,  though  it  was  quite  abstract. 
They  analyzed  economic  wants,  and  based  the  oikonomik  and 
chrematistik  of  their  philosophy  upon  this  analysis.  The 
Athenian  philosophers  were  more  appreciative  of  material 
wealth  as  an  agency  in  furthering  human  happiness  than  were 
the  sacred  writers  of  the  Hindus,  at  least.  The  well-known 

1  Laws,  Bk.  V,  743  (Jowett,  The  Dialogues  of  Plato,  Vol.  V,  p.  126). 
1  Politics,  Bk.  Ill,  chap.  9. 


GREEK  ECONOMIC  THOUGHT  53 

care  for  the   body  by  the  Greeks  had  its  economic  signifi- 
cance. 

Most  important  of  all,  the  Greeks  were  more  rational.  In- 
stead of  forbidding  interest  in  pursuance  of  some  divine  edict, 
they  argued  about  it  and  reached  the  conclusion  that  it  was  un- 
just. Thus  the  writings  of  Plato  and  Aristotle  mark  a  great  step 
in  advance  in  economic  method,  as  well  as  in  scope  and  depth  of 
analysis. 


CHAPTER  V 
THE    ECONOMIC    THOUGHT    OF    THE    ROMANS 

FROM  Greece  the  scepter  passed  to  Italy,  and  the  glory  of 
Greek  thought  became  merged  in  the  grandeur  that  was  Rome's. 
No  pause  need  be  made  to  retail  the  very  scanty  information  we 
have  about  early  Roman  thought,  before  the  stimulus  of  Greek 
ideas  had  been  received.  Suffice  it  to  say  that  aside  from  juris- 
prudence, the  chief  writings  of  the  Romans  were  produced  under 
the  influence  of  Greek  thought,  and,  as  in  the  case  of  their  art,  a 
notable  lack  of  freshness  and  originality  is  apparent. 

The  Athenians  were  thinkers,  keen  and  analytic.  The  Ro- 
mans were  men  of  action,  warriors  and  statesmen.  The  former 
left  a  philosophy  which  profoundly  affected  the  ethics  and  eco- 
nomics of  later  thinkers ;  the  latter  built  institutions  which  as 
profoundly  affected  law  and  politics.  The  heritage  of  the  former 
has  been  a  direct  and  subjective  force ;  the  other,  chiefly  indirect 
and  objective,  conditioning  the  thought  of  the  individual.  As 
will  appear  in  a  moment,  however,  Roman  thought  has  had  more 
direct  influence  than  its  intrinsic  depth  would  account  for. 

Of  especial  interest  is  the  fact  that  the  decay  of  Rome  was  well 
under  way  when  her  chief  writers  were  engaged  on  their  works. 
This  fact  colors  their  writings  and  conditions  their  economic 
ideas.  The  state  of  decay  is  at  least  half  perceived  by  them,  and 
remedies  are  pointed  out  for  the  evils  discerned.  The  causes 
and  remedies  as  they  presented  themselves  —  say  in  the  time 
of  Caesar  —  were  only  in  part  economic ;  but  the  economic  ideas 
of  the  Roman  philosophers  were  largely  palliatives  for  a  declin- 
ing state. 

Roman  economic  ideas  may  be  gathered  from  two  main  sources : 
(i)  the  jurists  and  writers  on  legal  matters;  (2)  the  philoso- 

54 


THE  ECONOMIC  THOUGHT  OF  THE  ROMANS     55 

phers.1  Of  less  importance  are  (3)  a  few  writers  on  agriculture 
(de  re  rustica) ;  their  ideas  were  either  purely  technical  or  fall 
under  the  philosophical  group. 

Economic  Thought  of  the  Jurists.  —  Among  the  jurists  are 
found  the  most  original  Roman  thinkers,  and  the  laws  express 
the  best  Roman  thought.  No  system  of  economics  is  expressed 
or  implied,  and  ethical  or  sociological  considerations  outweigh 
those  economic;  but  the  following  brief  generalizations  are  of 
economic  significance. 

1.  Natural  Law. — The  Roman  jurists  made  a  distinction 
between  human  law  and  natural  law  which  had  much  influence 
upon  medieval  and  later  thought.     Thus  their  jus  civile  was  a 
national  law  applicable  to  Roman  citizens.     On  the  other  hand, 
a  body  of  law  known  SLSJUS  gentium  was  developed  for  foreigners 
of  whatever  nationality.     The  latter  was  broader  and  less  guided 
by  arbitrary  local  customs.     It  was  more  rational.     Yet,  at  the 
same  time,  being  so  founded  on  general  principles,  it  contained 
within  itself  the  capacity  for  abstract  absolutism  in  thought. 
Later  it  was  united  with  the  Greek  concept  of  the  natural,  and 
as  a  jus  naturale  colored  succeeding  thought.2 

2.  Private  Property  and  Contract.  —  In  their  ideas  about  two 
legal  institutions,  the  jurists  have  had  great  effect  in  an  objective 
way  upon  the  development  of  economic  thought ;  these  are  the 
institutions  of  property  and  of  contract.     Theirs  was  a  somewhat 
narrowly  individualistic  idea  of  property.     Under  the  stimulus 
of  Stoic  philosophy  and  the  ideal  of  a  jus  naturale,  the  jurists 
moved  away  from  the  clan  or  family  as  a  social  unit,  and  clearly- 
defined  individual  rights  replaced  whatever  community  of  prop- 
erty there  had  been.3     And  a  corollary  of  this  movement  was  the 
development  of  freedom  of  contract,  including  the  right  of  the 
individual  to  dispose  of  his  property.     The  importance  of  these 

1  Others,  as  religious  or  theological  writers,  no  doubt  influenced  economic 
thought  and  institutions  indirectly. 

2  Cf.  Maine,  Ancient  Law,  pp.  56,  88;  Carlyle  (R.  W.,  and  A.  J.),  A  His- 
tory of  Medieval  Political  Theory. 

1  The  nature  and  scope  of  property  rights  changed  at  the  same  time,  oi 
course. 


56  ECONOMIC  THOUGHT 

institutions  as  a  basis  for  all  economic  processes,  and  their  lia- 
bility to  abuse,  are  apparent.  As  a  great  English  economist  has 
said,  "  to  Roman  .  .  .  influence  we  may  trace  indirectly  much 
of  the  good  and  evil  of  our  present  economic  system ;  on  the  one 
^hand  much  of  the  untrammelled  vigour  of  the  individual  in 
managing  his  own  affairs,  and  on  the  other  not  a  little  harsh 
wrong  done  under  the  cover  of  rights,  established  by  a  system  of 
law  which  has  held  its  ground  because  its  main  principles  are  wise 
and  just."  l 

An  important  characteristic  of  Roman  thought  is  the  separa- 
tion between  the  personal  and  the  non-personal  that  it  contains. 
On  the  one  hand  political  and  juristic  doctrines  generally  ex- 
cluded personal  considerations;  while,  on  the  other,  religion, 
Stoicism,  etc.,  emphasized  them.  This  separation  was  instru- 
mental in  making  the  scientific  development  of  Roman  law  pos- 
sible. But  as  a  result  Roman  juristic  philosophy  seems  one- 
sided to  us  in  that,  while  it  was  individualistic,  in  its  earlier  days, 
at  least,  it  tended  to  overlook  the  personality  of  man.  As  a  sub- 
jective element  having  moral  rights,  man  was  hardly  considered. 
This  is  illustrated  by  the  fact  that  the  individualism  of  the  Ro- 
mans could  be  and  was  limited  to  certain  classes,  as  was  freeddm 
of  contract.  With  such  a  basis,  humanitarian  considerations 
could  only  with  difficulty  be  appreciated  as  a  distinct  force. 

3.  Money  and  Interest.  —  Worthy  of  mention  is  the  fact  that 
Roman  jurists  had  a  good  appreciation  of  money.2  Besides 

1  Marshall,  Principles  of  Economics,  p.  23,  4th  ed. 

J  The  following  statement  of  the  origin  and  use  of  money  by  the  jurist 
Paulus  has  become  famous :  "  Purchase  and  sale  arose  from  exchanges ;  for 
formerly  there  was  not  money  as  now,  nor  was  one  thing  called  ware  and 
another  price,  but  each  according  to  his  necessities  used  to  exchange  things 
lacking  utility  for  those  which  had  it,  since  it  often  happens  that  what  one 
has  an  abundance  of  another  lacks.  But  because  it  does  not  always  nor 
readily  happen  that  when  you  have  what  I  desire,  I  in  turn  have  what  you 
are  willing  to  receive,  a  material  is  chosen  whose  valuation  being  permanent  and 
fixed  by  the  state  (publica  ac  perpetua  aestimatio)  should  remedy  the  diffi- 
culties of  exchanges  by  equality  of  value  in  given  quantities ;  and  this  ma- 
terial being  struck  with  a  public  form  (i.e.  coined)  represents  usefulness  and 
effectiveness  not  so  much  from  intrinsic  value  as  from  (value  in  a  given) 


THE  ECONOMIC  THOUGHT  OF  THE  ROMANS      57 

having  a  clear  idea  of  its  advantages  for  exchange  purposes,  they 
saw  that  it  was,  in  a  sense,  merely  a  commodity  of  a  more  or  less 
changeable  value,  —  a  value  which  is  essential  to  its  function 
and  which  cannot  be  established  by  law. 

In  the  earlier  periods  of  Roman  history,  the  law  appears  on  the 
whole  to  have  opposed  interest-taking.  The  Laws  of  the  Twelve 
Tables  fixed  the  interest  rate,  but  condemned  usury,  thus  recog- 
nizing a  distinction  between  the  two.  In  357  B.C.  the  rate  was 
changed  to  ten  per  cent ;  in  347  it  was  cut  to  five  per  cent ;  and 
five  years  later  interest  was  forbidden  entirely  by  the  Genucian 
Laws.  But  with  conquest  and  the  growth  of  wealth  things 
changed.  Borrowing  and  lending  were  great  in  amount  and 
widespread,  large  gains  being  made  by  borrowing  at  from  four 
to  eight  per  cent  in  Rome  and  lending  in  the  provinces  at  such 
enormous  rates  as,  for  example,  forty-eight  per  cent.  Finally, 
the  Institutes  of  Justinian  fixed  rates  of  from  four  to  eight 
per  cent,  according  to  the  character  of  the  loan.  Such 
legislation,  however,  seems  to  have  been  practically  a  dead 
letter,  the  actual  rate  varying  with  market  conditions. 

Economic  Thought  of  the  Philosophers.  —  While  the  jurist 
said,  thou  shalt,  the  philosopher  was  saying,  thou  shouldst. 
Though  the  genius  of  the  Romans  was  certainly  far  less  ethical 
than  that  of  the  more  speculative  Athenians,  yet  Roman  philos- 
ophers generally  let  ethical  notions  take  the  place  of  scientific 
principles;  as,  for  example,  Cicero  said  that  the  universal 
opinion  ought  to  be  "  brought  over  to  the  hope  that  men  may 
learn  to  expect  the  attainment  of  what  they  desire  by  right 
purposes  and  honest  deeds,  not  by  fraud  and  roguery,"  l  and 
again,  "  Let  it  be  settled  then,  that  what  is  wrong  is  never 
expedient."  2 

The  chief  writers  of  this  class  were  Cicero,  Seneca,  and  Pliny 

quantity.  Both  being  called  wares  no  longer,  but  the  one  called  price." 
Cf.  Aristotle's  words,  above,  p.  48. 

Dig.  de  contrah.  empt.  xviii,  i ;  quoted  by  Kautz,  Geschich.  Entwicke- 
lung  d.  Nat.  Oek.,  p.  173.  See  Moyle,  Contract  of  Sale  in  Civil  Law,  pp. 
3,  221.  Kautz's  citation  seems  faulty  in  grammar  and  punctuation. 

1  De  Officiis,  Bk.  II,  chap.  3.  *  Ibid.,  Bk.  Ill,  chap,  if 


58  ECONOMIC  THOUGHT 

the  Elder ;  and  the  younger  Pliny,  Marcus  Aurelius,  and  Epicte- 
tus  may  be  mentioned.  Of  all,  it  can  be  said  that  they  decried 
the  luxury  and  vices  of  their  time,  contemning  the  thirst  for 
riches  —  especially  money  —  and  preaching  moderation.  Look- 
ing back  at  the  good  old  days,  they  praised  a  simpler  agricultural 
economy.  0  temporal  O  mores!  Such  was  Rome's  state 
that  her  philosophers  dreamed  of  the  simple  life  and  called, 
"  back  to  nature!" 

While  there  is  more  insistence  on  a  competency  of  worldly 
goods  than  among  the  idealistic  Greeks  and  the  religious  He- 
brews, there  is  not  one  of  these  philosophers  but  would  have 
echoed  the  words,  "  The  love  of  money  is  the  root  of  evil." 
The  Greek  philosophers'  view  of  interest  also  prevailed,  Cicero 
with  all  the  others  opposing  it.  Cicero  tells  us  that  Cato  thought 
usury,  i.e.  interest,  as  bad  as  murder,  saying,  "  Would  you  take 
interest?  would  you  kill  a  man?  "  Seneca  condemned  interest- 
taking  on  the  same  ground  as  Aristotle.1  Indeed  it  must  be  said 
of  these  writers,  as  of  the  Greeks,  that  they  did  not  fully  appre- 
ciate the  nature  and  functions  of  money,  not  to  mention 
capital  as  a  whole. 

Agriculture  the  only  Honorable  Industry.  —  A  limitation  upon 
Roman  economic  thought,  one  common  to  Romans  and  Greeks, 
was  the  prevailing  idea  that  the  only  honorable  industry  was 
agriculture.  Cicero  may  be  regarded  as  typical  in  this  respect, 
and  he  wrote :  "  Now  as  to  the  trades  and  modes  of  getting  gain 
that  are  to  be  regarded  as  respectable,  and  those  that  are  to  be 
deemed  mean  and  vulgar,  the  general  opinion  is  as  follows: 
In  the  first  place,  those  callings  are  held  in  disesteem  that  come 
into  collision  with  the  ill  will  of  men,  as  that  of  taxgatherers,  as  that 
of  usurers.  The  callings  of  hired  laborers,  and  of  all  who  are 
paid  for  their  mere  work  and  not  for  skill,  are  ungenteel  and  vul- 
gar ;  for  their  wages  are  given  for  menial  service.  Those  who 
buy  to  sell  again  as  soon  as  they  can  are  to  be  accounted  as  vulgar ; 
for  they  can  make  no  profit  except  by  a  certain  amount  of  false- 
hood, and  nothing  is  meaner  than  falsehood.  All  mechanics  are 
engaged  in  vulgar  business ;  for  a  workshop  can  have  nothing 

1  De  Beneficiis,  VII,  10  (Kautz,  p.  156). 


THE  ECONOMIC  THOUGHT  OF  THE  ROMANS      59 

respectable  about  it.  Least  of  all  can  we  speak  well  of  the  trades 
that  minister  to  sensual  pleasures,  — 

'  Fishmongers,  butchers,  cooks,  poulterers,  and  fishermen,' 

as  Terence  says.  Add,  if  you  please,  to  this  list  perfumers, 
ballet-dancers,  and  the  whole  tribe  of  dice-players.  The  pro- 
fessions which  require  greater  skill  and  are  of  no  small  benefit 
to  the  community,  such  as  medicine,  architecture,  and  the  in- 
struction of  youth  in  liberal  studies,  are  respectable  for  those 
whose  rank  they  suit.  Commerce,  if  on  a  small  scale,  is  to  be 
regarded  as  vulgar ;  but  if  large  and  rich,  importing  much  from 
all  quarters,  and  making  extensive  sales  without  fraud,  it  is 
not  so  very  discreditable.  .  .  .  But  of  all  means  of  acquiring 
gain,  nothing  is  better  than  agriculture,  nothing  more  produc- 
tive, nothing  more  pleasant,  nothing  more  worthy  of  a  man  of 
liberal  mind."  l 

Quietism.  —  The  philosophy  of  the  Stoics  was  tinged  with  a 
quietism  which  induced  in  many  a  sort  of  economic  fatalism 
resembling  that  noted  in  the  Orient.2  For  example,  Marcus 
Aurelius  meditated  in  such  a  strain  as  the  following :  "Be 
satisfied  with  your  business,  and  learn  to  love  what  you  were 
bred  to;  and  as  to  the  remainder  of  your  life,  be  entirely  re- 
signed, and  let  the  gods  do  their  pleasure  with  your  body  and 
soul."  3  Now  Stoicism  was  widespread  among  philosophers  and 
jurists,4  and  the  attitude  indicated  was  unfavorable  to  economic 
interest  and  investigation.  It  would  tend  to  remove  the  sense 
of  ethical  responsibility  and  to  beget  a  sort  of  inertia.  Here, 
then,  was  another  limitation  to  Roman  economic  thought. 

Though  there  was  this  feeling  among  the  upper  classes,  at 
least,  toward  the  crafts  and  small-scale  commerce,  and  the 
quietism  in  thought  just  noted,  still  the  Romans  were  notably 
careful  in  business  relations  and  matters  of  account.  Many 

1  De  Officiis,  Bk.  I,  §  42  (translated  by  O.  P.  Peabody). 

2  Above,  p.  37. 

3  Meditations  of  Marcus  Aurelius,  IV,  31. 

4  Even  Cicero,  though  an  adherent  of  the  New  Academy,  with  its  Peri- 
patetic tendencies,  wrote  his  ethical  works  with  a  dominant  Stoic  strain. 


60  ECONOMIC  THOUGHT 

instances  might  be  cited  of  their  accurate  and  cautious  manner 
of  recording  both  public  and  private  transactions.1  Moreover, 
there  is  evidence  that  credit  institutions  similar  to  the  check 
and  promissory  note  were  known  and  used,  while  Cicero  re- 
quested Curius  to  honor  Tiro's  draft  for  any  amount  and  asked 
Atticus  to  ascertain  if  he  could  get  exchange  in  Athens.2 

While  of  little  direct  significance  as  to  economic  thought, 
these  facts  would  indicate  that,  although  lacking  in  theoretical 
analysis,  the  Romans  must  have  had  many  concrete  ideas  about 
economic  relationships,  of  which  but  little  can  be  said  here. 

Writers  on  Agriculture.  —  Chief  among  the  scriptores  de  re 
rustica,  or  writers  on  agriculture,  were  Cato,  Varro,  and  Colu- 
mella.  These  writers  produced  semi-technical  treatises  on 
rural  economy,  dealing  with  the  production  of  wine,  oil,  etc., 
the  raising  of  different  grain  crops,  and  grazing.  Then,  in  the 
introduction  or  some  concluding  book,  general  principles  of 
private  economy  were  added.  They  agree  in  decrying  the  lati- 
fundia,  or  large  estates,  absenteeism,  and  the  spread  of  slavery, 
and  in  praising  small-scale  fanning.  This  pretty  general  con- 
demnation of  slavery  on  economic  grounds  is  especially  note- 
worthy. 

Varro's  statement  is  typical :  "  To  this  whole  class  of  free 
men  [who  till  fields]  the  statement  is  applicable  that  it  pays  to 
use  hired  help  rather  than  slave  labor  at  all  times  in  disease- 
laden  districts,  and  even  in  the  healthful  regions  as  well  for 
the  more  difficult  tasks  of  husbandry  like  the  harvesting  of 
the  vintage  and  the  crops."  3 

Originally,  the  Romans  were  a  stern  and  warlike  folk,  of 
simple  tastes.  As  a  people,  they  always  dreaded  the  sea,  and 
were  slow  to  engage  in  foreign  trade.4  It  was  only  after  mili- 
tary conquest  had  enriched  them  with  booty,  therefore,  that 

1  See,  e.g.,  Oliver,  Roman  Economic  Conditions  to  the  Close  of  the  Re- 
public (University  of  Toronto,  1907),  pp.  130-131. 

1  Ep.  ad  Fam.,  XVI,  iv,  2 ;  XI,  i,  2 ;  XII,  xxiv,  i. 

1  De  Re  Rustica,  I,  xvii,  2 ;  cited  by  Oliver,  Roman  Economic  Conditions, 
p.  127. 

4  But  see  Oliver,  Roman  Economic  Conditions  (University  of  Toronto, 
1907),  pp.  21  ff. 


THE  ECONOMIC  THOUGHT  OF  THE  ROMANS      6 1 

they  acquired  luxuries  and  luxurious  tastes  which  necessitated 
commerce.  At  the  same  time  the  use  of  slaves  increased  to 
great  proportions,  while  there  was  a  concomitant  destruction  of 
the  independent  yeoman  class.  Land  was  cultivated  in  the 
form  of  great  estates,  latifundia,  for  absentee  landlords,  while 
an  increasing  mass  of  free  but  impoverished  citizens  was  main- 
tained in  the  cities  at  the  public  expense.  This  meant  a  grow- 
ing separation  of  classes.  It  is  little  wonder  then  that  the 
writers  of  the  degenerate  period  turned  longing  eyes  upon  the 
simple  rural  life  of  bygone  days. 

The  similarity  between  Rome's  later  days  and  the  condition 
of  France  in  the  eighteenth  century  has  been  noticed  by  some 
historians,1  and  it  is  an  interesting  reflection  that  in  both  cases 
a  declining  state  caused  men  to  long  for  a  simpler  and  more 
"natural"  life. 

Roman  Ideas  on  Value.  —  In  accord  with  the  practical,  non- 
speculative  genius  of  the  Romans  was  their  thought  concerning 
value.  Passing  from  a  regime  of  customary  price,  they  had,  as 
early  as  450  B.C.,  when  the  laws  of  the  Twelve  Tables  were 
formulated,  left  the  determination  of  price  to  the  fluctuations 
of  the  market.  The  buyer  was  given  no  recourse  against  the  seller 
except  in  case  of  misrepresentation,  and  Paulus  quotes  Pedius 
to  the  effect  that  "  the  prices  of  things  are  to  be  determined 
neither  with  reference  to  affection  nor  to  their  utility  to  single 
individuals,  but  prices  have  a  common  validity."  2  It  was  the 
doctrine  of  the  jurists  that  each  might  seek  to  overreach  the 
other  in  the  matter  of  price.  But  as  for  any  analysis  of  the 
forces  which  determined  what  overreaching  was,  or  any  exact 
definition  of  it,  there  was  none. 

As  time  went  on  and  exchange  grew,  the  concept  of  a  just  or 
real  price,  verunt  pretium,  arose.  Thus  one  of  the  Emperor 
Diocletian's  rescripts  allowed  the  seller  a  right  of  recovery  in 
case  of  a  sale  for  under  half  the  true  price  (verum  pretium).3 

1  E.g.  Kautz,  above  cited,  p.  161. 

J  Ad  legem  aquillam,  Dig.,  Bk.  IX,  tit.  ii,  §  33 ;  Sewall,  Theory  of  Value 
before  Adam  Smith,  p.  6. 

1  See  Ashley,  English  Economic  History,  Vol.  I,  p.  208,  note  19. 


62  ECONOMIC  THOUGHT 

In  an  edict  De  pretiis  rerum  venalium  (A.D.  301)  the  same  em- 
peror  attempted  to  fix  a  just  price  on  the  basis  of  customary 
cost  of  production.1  Though  these  rules  could  not  be  enforced, 
they  certainly  show  some  tendency  toward  introducing  ethical 
considerations,2  and  toward  a  limitation  of  the  freedom  of  con- 
tract during  Rome's  later  years. 

It  is  to  be  observed  that  the  importance  of  wants  and  utility 
did  not  escape  recognition,  though  not  as  a  chief  factor.  Thus 
Cicero  says,  "  The  only  limit  to  the  valuation  of  such  things 
(bronze  statues)  is  the  desire  which  any  one  has  for  them,  for 
it  is  difficult  to  set  bounds  to  the  price  unless  you  first  set 
bounds  to  the  wish  " ; 3  and  Seneca  remarks  that  some  things 
are  of  greater  value  than  the  price  which  we  pay  for  them. 
Such  a  recognition  could  scarcely  have  failed  to  obtain  where 
there  was  a  knowledge  of  Greek  philosophy.  It  seems  too 
much,  however,  to  say  that,  after  the  development  of  commerce 
and  credit,  utility  became  the  basis  for  exchange  value,  the 
judgment  of  utility  depending  on  the  wants  of  the  average 
normal  man.4 

Industrial  and  Commercial  Regulations.  —  It  is  not  to  be 
inferred  that,  because  the  Roman  law  stood  for  private  property 
and  freedom  of  contract,  the  Roman  state  did  not  interfere  in 
economic  matters.  In  times  of  financial  crisis  the  state  estab- 
lished a  public  bank  to  supplement  the  activities  of  the  pro- 
fessional bankers  of  the  Forum,5  and  not  a  few  measures  for 
the  protection  of  debtors  were  passed.  Cicero  induced  certain 
Greeks  and  Romans,  who  had  cornered  the  food  supply  in 
Cilicia,  to  promise  stores  to  the  people;  and  fines  were  levied 
on  grain  merchants  who  by  hoarding  had  raised  prices.  An 
aedile  inspected  goods  placed  on  sale  in  Roman  markets,  con- 
fiscating those  in  which  fraud  was  found ;  and  at  various  times 

1  Mommsen,  Der  Maximaltarif  des  Diokletian  (Berlin,  1893). 

2  Cf.  Endemann,  W.,Studien  in  der  Romanisch-Kanonistischen  Wirtschafts- 
u.  Rechtslehre,  II,  30. 

3  De  Beneficiis,  Book  IV,  Chap.  XXV  (Sewall,  above  cited). 

4  Rost,  Die  Wert-  und  Preistheorie  (Leipzig,  1908),  takes  this  view,  p.  26, 
note  i. 

5  Livy,  VII,  xxi,  8;  XXII,  Ix,  4;  XXIII,  xxi,  6. 


/    THE  ECONOMIC  THOUGHT  OF  THE  ROMANS      63 

the  government  took  measures  to  prevent  foreign  competition 
with  Italian  producers,  to  regulate  prices  of  oil,  and  to  prevent 
the  exportation  of  precious  metals.  An  interesting  case,  too,  is 
the  regulation  of  traffic  in  Rome,  loaded  wagons  being  forbidden 
the  use  of  the  streets,  except  during  the  evening  or  night,  and 
only  those  engaged  in  public  building  operations  could  be 
used  between  sunrise  and  the  tenth  hour.1  All  this  was  before 
the  close  of  the  Republic,  and  indicates  the  recognition  in  a 
practical  way  of  the  necessity  for  state  participation  in  indus- 
trial matters. 

Influence  of  Roman  Thought.  —  While  it  must  be  admitted 
that,  their  legal  contributions  excepted,  the  Romans  added 
little  to  the  stream  of  economic  thought,  their  importance  as  a 
medium  for  such  thought  is  great.  The  mystery  of  antiquity, 
the  sonorous  tongue,  the  prestige  of  military  and  political  pre- 
eminence all  combined  to  spread  the  writings  of  Roman  orators, 
essayists,  and  philosophers ;  and  with  them  were  disseminated 
the  Stoic  philosophy  and  the  ideas  of  the  Greeks.  With  them, 
too,  went  the  practical  maxims  of  the  people,  and  incidentally 
the  advice  of  the  father  or  the  meditation  of  the  statesman 
conveyed  ideas  of  economic  significance. 

These  writings  were  read,  nay,  studied,  by  men  of  a  later 
day,  in  Germany,  France,  and  England,  whose  veneration  for 
them  gave  them  a  weight  which  we  can  hardly  realize.  More- 
over, the  relative  development  in  economic  thought  of  the  early 
moderns  was  not  great,  and  their  economics  and  ethics  were 
not  untangled.  Thus  it  is  that  this  seeming  commonplace  of 
Cicero's  or  that  of  Seneca's  had  much  greater  influence  than 
was  warranted  by  its  intrinsic  economic  worth,  and  greater 
than  it  could  have  with  ourselves.  Though  the  Romans  did 
not  directly  develop  economic  theory,  a  knowledge  of  their 
writings  is  essential  to  an  understanding  of  the  continuity  of 
the  history  of  economic  thought. 

Division  of  Labor.  —  To  take  but  a  single  example,  consider 
the  subject  of  division  of  labor.  Adam  Smith  first  fully  de- 

1  "Lex  Julia  Municipalis,"  Corpus  Inscriptiorum  Lalinarum,  Vol.  I, 
206;  II,  56-61,  66-67;  cited  by  Oliver,  Roman  Economic  Conditions,  p.  133. 


64  ECONOMIC  THOUGHT 

veloped  its  economic  aspect;  but  he  rested  upon  Hume  and 
Hutcheson.  But  Hume's  footnotes  are  full  of  allusion  to 
Roman  writers,  and  Hutcheson  expressly  acknowledges  his  debt 
to  Cicero  on  this  very  subject.1  From  this  it  is  not  to  be  in- 
ferred that  but  for  Cicero  and  his  Greek  predecessors  there 
would  have  been  no  division-of-labor  doctrine,  nor  that  Cicero 
understood  the  full  significance  of  such  a  doctrine.  When, 
however,  an  idea  becomes  part  of  a  system  of  thought,  it  gains 
a  significance  and  richness  of  content  that  makes  a  case  like 
the  preceding  of  some  interest. 

In  brief  summary,  it  may  be  remarked  that  the  great  service 
of  the  Romans  to  economic  thought  was  the  development  of 
jurisprudence  as  a  science,  a  jurisprudence  whose  practical 
spirit  supported  a  great  degree  of  individualism  through  its 
doctrines  concerning  property,  contract,  interest,  and  the  like. 

As  Ingram  says,  "  Their  historic  mission  was  military  and 
political,  and  the  national  energies  were  mainly  devoted  to  the 
public  service  at  home  and  in  the  field.  ...  As  might  be 

1  System  of  Moral  Philosophy,  Vol.  I,  p.  290.  Cicero's  words  are  as 
follows :  — 

"  Indeed,  the  very  things  that  I  have  called  inanimate  are  produced  for 
the  most  part  by  the  labor  of  men,  nor  could  we  have  them  unless  handi- 
craft and  skill  had  given  their  aid,  nor  could  we  utilize  them  except  under 
the  management  of  men.  Nor  without  the  labor  of  man  could  there  be  any 
care  of  health,  or  cultivation  of  the  soil,  or  harvesting  and  preservation  of 
grain  and  other  products  of  the  ground.  Nor  could  there  be  the  exporta- 
tion of  our  superfluous  commodities,  nor  the  importation  of  those  in  which 
we  are  lacking,  unless  men  performed  these  offices  .  .  .  whence,  indeed, 
could  houses  .  .  .  have  been  furnished  .  .  .  unless  society  had  learned 
to  seek  aid  in  these  things  from  men?  .  .  .  Why  should  I  enumerate  the 
multitude  of  arts  without  which  life  could  not  have  been  at  all  ?  How  could 
the  sick  be  cured,  what  would  be  the  enjoyment  of  the  healthy,  what  would 
be  our  food  or  our  mode  of  living,  did  not  so  many  arts  give  us  their  minis- 
tries ?  It  is  by  these  things  that  the  civilized  life  of  men  is  so  far  removed 
from  the  subsistence  and  mode  of  living  of  the  beasts.  Cities,  too,  could 
not  have  been  built.  .  .  .  These  things  have  been  followed  by  mildness  of 
disposition  and  by  modesty,  and  the  consequence  is  that  human  life  is  better 
furnished  with  what  it  needs,  and  that  by  giving,  receiving,  and  interchang- 
ing commodities  and  conveniences  we  may  have  all  our  wants  supplied." 
(De  Officiis,  II,  3-5.) 


THE  ECONOMIC  THOUGHT  OF  THE  ROMANS     65 

expected  from  the  want  of  speculative  originality  among  the 
Romans,  there  is  little  evidence  of  serious  theoretic  inquiry  on 
economic  subjects."  * 

It  is  essential  to  emphasize  their  influence  in  an  objective 
way  through  institutions  juristic  or  political,  and  further  to 
point  out  that  their  prestige  as  classics  gives  them  an  adventi- 
tious importance. 


APPENDIX  TO  CHAPTER  V 

QUOTATIONS  FROM  WRITERS  ON  AGRICULTURE 

"After  the  paterfamilias  has  come  to  the  villa  and  performed  his 
devotions  to  his  domestic  deity,  he  ought  that  same  day,  if  possible, 
to  make  a  tour  of  his  farm ;  if  not  that  day,  at  least  the  next.  When 
he  has  considered  how  his  fields  should  be  cultivated,  what  tasks  should 
be  completed,  what  not,  then  on  the  next  day  he  ought  to  summon  the 
vilicus,  and  inquire  what  work  has  been  accomplished,  what  still 
remains;  whether  the  work  is  far  enough  advanced  for  the  season, 
whether  what  still  remains  can  be  completed,  what  has  been  done 
about  the  wine,  corn,  and  other  products.  When  he  has  ascertained 
this,  he  ought  to  inspect  the  account  of  the  various  workmen,  and  of 
the  working  days.  .  .  .  When  there  have  been  storms,  consider  the 
work  that  could  have  been  performed  while  it  rained;  jars  ought  to 
have  been  washed  and  pitched,  the  villa  cleaned,  corn  carried  away, 
dung  removed,  dunghills  made,  seed  cleaned,  old  ropes  repaired,  new 
ones  made,  and  the  slaves  ought  to  have  patched  together  their  rag- 
garments  and  caps  for  themselves.  On  holy  days  old  trenches  could 
have  been  cleaned,  the  highways  paved,  the  brambles  cut,  the  garden 
dug,  the  meadow  cleared,  twigs  bound,  thorns  rooted  up,  the  spelt 
pounded,  everything  put  in  order.  When  the  slaves  have  been  sick, 
the  ordinary  supply  of  provisions  ought  not  to  have  been  given  to 
them.  When  he  is  quite  satisfied  with  his  examination,  he  should  give 
orders  for  the  completion  of  the  work  that  remains.  He  should  then 
inspect  the  accounts  of  the  vilicus,  money-account  and  provision- 
account,  the  supply  of  food  prepared,  the  wine-account,  the  oil-ac- 
count, what  has  been  sold,  what  used,  what  remains,  what  of  this  is  for 
sale.  Let  there  be  good  security  for  what  is  owing.  As  to  what 

1  A  History  of  Political  Economy  (New  York,  1907  ed.),  p.  19. 


66  ECONOMIC  THOUGHT 

remains,  he  should  see  that  it  tallies.  He  should  buy  what  is  wanting 
for  the  year,  have  the  surpluses  sold,  let  out  the  necessary  contracts. 
He  should  give  orders  concerning  the  works  he  would  have  completed, 
and  the  things  he  is  inclined  to  let,  and  leave  his  order  in  writing.  He 
should  carefully  inspect  his  flocks,  make  his  sales,  sell  the  superfluous 
oil,  wine,  and  corn,  if  they  are  giving  a  good  price,  sell  the  old  oxen, 
the  refuse  of  the  cattle  and  sheep,  wool,  hides,  the  old  carts,  old  iron 
tools,  and  old  and  diseased  slaves.  Whatever  is  superfluous  he  ought 
to  sell :  'A  farmer  should  sell,  not  buy.' "  (CATO,  De  Re  Rustica,  II.) 

Of  the  vtticus  Cato  says:  "He  should  maintain  good  discipline, 
attend  to  the  observance  of  holy  days,  keep  his  hands  off  the  property 
of  others,  faithfully  protect  his  own,  preside  over  disputes  among  the 
slaves,  punish  with  discretion  those  guilty  of  a  delinquency,  provide 
against  ill  befalling  the  household,  against  sickness,  against  hunger. 
If  he  keeps  the  slaves  busy  with  work  it  will  be  easier  for  him  to  keep 
them  out  of  mischief  and  out  of  other  people's  affairs.  ...  He  must 
extend  loans  to  none  without  his  master's  orders,  and  must  exact  pay- 
ment from  his  master's  debtors.  He  must  lend  no  one  seed  for  sowing 
or  provisions  or  spelt  or  wine  or  oil.  Let  him  have  two  or  three 
households  from  which  he  may  borrow,  or  to  whom  he  may  lend 
articles  —  let  this  be  the  limit.  He  must  often  reckon  his  accounts 
with  his  master.  He  must  not  use  the  same  labourer,  hired  servant, 
or  cultivator  longer  than  a  day.  He  must  not  desire  to  sell  anything 
without  his  master's  knowledge,  or  to  conceal  anything  from  his 
master."  (CATO,  De  Re  Rustica,  V,  1-5.) 

"As  for  those  articles  which  can  be  raised  on  the  farm  or  manu- 
factured by  the  servants  none  of  these  should  be  bought.  Of  such  a 
nature  are  nearly  all  those  utensils  in  the  manufacture  of  which  you 
use  osiers  and  other  materials  at  hand  in  the  country ;  for  example, 
baskets,  broom-baskets,  threshing-sledges,  winnowing-vanes,  hoes; 
so  too  those  in  the  making  of  which  are  employed  hemp,  linen,  rushes, 
palms,  bulrushes,  as  ropes,  cords,  coverings.  But  in  the  case  of  things 
which  you  cannot  produce  on  the  farm  make  your  purchases  with  a 
view  to  their  usefulness  rather  than  ornament,  and  then  their  cost 
will  not  eat  up  their  profit.  This  will  be  especially  the  case  if  you  get 
them  where  they  can  be  obtained  good  in  quality,  close  at  hand,  and 
cheap  in  price."  (VARRO/Zte  Re  Rustica,  I,  XXII,  i,  2.) 


II.  MEDIEVAL  ECONOMIC  THOUGHT 


CHAPTER  VI 

THE    MIDDLE   AGES 

\, 

The  Period  Defined.  —  There  is  a  certain  rather  ill-defined 
period  in  the  world's  history  which  is  commonly  known  as  the 
Middle  Ages.  Most  writers  agree  in  placing  the  beginning  of 
this  period  at  the  fall  of  the  Roman  Empire  in  476,  but  its 
ending  is  not  so  clear.  Dr.  Ingram  l  and  others  would  bring 
it  to  a  close  with  the  year  1300,  and  it  may  be  agreed  that 
the  Middle  Ages  reached  a  climax  at  about  that  time.  But  it 
by  no  means  follows  that  the  years  of  decline  and  break-up  of 
medieval  institutions  which  ensued,  constituted  the  beginning 
of  things  modern.  Ingram  himself  says  that  the  movements 
of  his  first  modern  phase  (1300-1500)  "  can  scarcely  be 
said  to  find  an  echo  in  any  contemporary  economic  litera- 
ture." It  seems  more  nearly  true  to  regard  the  years  about 
1500  as  marking  the  end  of  medieval  times.  By  1300  the  tran- 
sition was  not  complete.  Not  till  toward  the  close  of  the  fifteenth 
century  did  Humanism  mark  the  rise  of  new  tendencies  in 
thought.  At  the  same  time  the  religious  world  was  on  the  eve 
of  its  great  Reformation ;  while  in  the  mixed  field  of  politics  and 
economics  the  beginning  of  modern  nation-building  may  be 
discerned.  More  objectively,  there  were  such  geographical 
discoveries  as  that  of  America  and  the  water  route  to  India 
(1498) ;  and  the  extended  use  of  such  agents  of  civilization  as 
the  mariners'  compass  and  gunpowder  began  during  the  same 
period.  The  significance  of  the  influx  of  silver  which  followed 
the  discovery  of  America  has  often  been  noted  and  its  impor- 
tance in  bringing  about  the  exchange  economy  of  modern" 
times  commented  upon ;  but  American  mines  were  not  opened 
until  the  sixteenth  century. 

1  Following  Comte. 
69 


yo  ECONOMIC  THOUGHT 

In  a  word,  the  Middle-Age  period  does  not  close  with  Nicolas 
Oresme,  but  with  Gabriel  Biel,  his  disciple,  who  is  sometimes 
called  "  the  last  of  the  schoolmen." 

If  further  proof  were  needed,  it  might  be  observed  that  Feu- 
dalism, a  preeminently  medieval  institution,  did  not  generally 
begin  to  lose  i^s  power  until  after  1500,  the  period  during  which 
it  really  represented  the  political  organization  of  French  society, 
for  example,  being  that  lying  between  the  years  numbered  1300 
and  I5OO.1  It  was  in  the  early  sixteenth  century,  too,  that 
the  English  government  gave  the  death  blow  to  craft  gilds,  an- 
other medieval  institution. 

On  large  lines,  and  from  the  viewpoint  of  systems  of  thought 
rather  than  systems  of  industry,  the  Middle  Ages  may  with  profit 
be  divided  into  two  periods.  From  400  down  to  1 200,  or  shortly 
thereafter,  constitutes  the  first.  During  these  years  Christian 
theology  opposed  Roman  institutions,  and  Germanic  customs  were 
superposed,  until,  through  action  and  reaction,  all  were  blended. 
This  was  the  reconstruction ;  it  was  the  "  stormy  struggle  "  to 
found  a  new  ecclesiastical  and  civil  system.  From  1200  on  to 
1500  the  world  of  thought  settled  to  its  level.  Feudalism  and 
scholasticism,  the  cornerstones  of  medievalism,  emerged  and 
were  dominant.  The  latter,  springing  from  the  fusion  of  Aris- 
totle's philosophy  with  Christian  theology,  was  formulated  by 
Thomas  Aquinas,  who  may  be  said  to  mark  the  turning  point 
between  the  sub-periods.2 

Germanic  Contributions  to  Economic  Thought.  —  Relatively 
little  is  to  be  said  about  the  economic  ideas  of  the  early  Ger- 
manic tribes.  Their  contribution  was  rather  a  new  point  of 
view,  given  expression  in  particular  customs.  This  is  not  the 
place  to  discuss  the  mark,  the  three-field  system,  and  all  the 
interesting  phenomena  of  their  industrial  life.  It  will  suffice  to 

1  Esmein,  Cours  El&mentaire  d'histoire  du  droit  fran$ais. 

*  The  periods  suggested  correspond  rather  closely  to  those  in  industrial 
history.  Some  time  during  the  twelfth  or  thirteenth  centuries  in  England, 
and  to  a  less  extent  in  France  and  Germany,  a  town  economy  with  division 
of  occupations,  inter-municipal  trade,  and  money,  largely  replaced  an  inde- 
pendent domestic  economy  in  which  those  characteristics  were  more  or  less 
lacking,  and  land  was  the  chief  basis  of  social  and  economic  life. 


THE  MIDDLE  AGES  71 

recall  the  fact  that  originally  the  social  and  economic  unit  was 
the  village  community  (Genossenschafi) ,  a  virtually  self-suffi- 
cient group  of  households,  democratic  and  similar  in  wealth. 
The  community  came  before  the  individual,  and  within  it  the 
idea  of  brotherhood  was  strong.  It  followed  that  exchange  for 
gain  was  hardly  tolerated  within  the  community,  but  a  com- 
mon value  was  placed  upon  such  things  as  were  exchanged,  and 
even  exchanges  with  other  groups  were  regulated.  There  was 
no  money  economy. 

The  ideas  and  customs  of  the  Germanic  tribes  sharply  dif- 
ferentiate them  from  the  Romans.  The  latter  based  their  law 
upon  individual  rights ;  the  former  emphasized  the  community, 
—  though  a  large  degree  of  democracy  gave  room  for  a  broad 
individualism.  Accordingly,  with  the  Romans  there  was  a 
sharp  distinction  between  private  and  public  rights,  whereas 
these  rights  were  mutually  determining  and  faded  into  one 
another  in  the  case  of  the  Teutons.  More  specifically,  Roman 
law  made  property  rights  rather  absolute  and  rigid,  while  by 
Germanic  custom  these  rights  were  relative  and  changing.  For 
example,  the  Genossenschaften  had  several  different  kinds  of 
landed  property,  perhaps  these  four :  dwelling  places,  gardens, 
arable  lands,  waste  lands.  In  the  first  two,  a  large  degree  of 
private  property  was  recognized;  but  the  fields,  with  their 
changing  strips,  were  subject  to  the  plans  of  the  community, 
and  the  waste  land,  or  "  commons,"  as  its  name  implies,  was  the 
property  of  no  individual.  Thus  property  rights  had  a  different 
extent  according  to  the  nature  of  the  object  involved. 

A  noteworthy  characteristic  was  the  emphasis  put  by  these 
peoples  upon  personal  rights.  Their  laws  seem  to  indicate  that 
they  were  more  concerned  about  such  than  about  property 
rights.  On  the  other  hand,  arid  almost  paradoxically,  personal 
rights  depended  largely  upon  landed  property,  land  being  the 
basis  of  things  in  their  industrial  stage. 

The  Influence  of  Christianity  and  the  Church.  —  If  the 
Roman  factor  be  taken  for  granted,  Christianity  and  the  Church 
may  be  considered  next  as  perhaps  the  chief  factors  in  deter- 
mining medieval  thought.  It  is  necessary  to  'keep  these  two 


72  ECONOMIC  THOUGHT 

ideas  separate,  for  few  will  deny  that  Christianity  as  a  religion 
is  quite  distinct  from  the  various  institutions  or  churches  which 
profess  it.  Those  principles  of  Christian  doctrine  which  have 
any  direct  economic  significance  follow. 

1.  The  Church,  in  accordance  with  the  spirit  of  Christianity, 
taught  the  natural  equality  of  men.     The  ancients,  as  already 
seen,  believed  that  men  were  different  by  nature :   slavery,  like 
castes, Levites,  and  "guardians,"  was  natural,  and  corresponded 
to  some  inherent  baseness.     Christianity  taught  a  brotherhood 
which  extended  beyond  community  or  nation,  embracing  all 
classes  and  races.1 

2.  Accordingly,  slavery  was  condemned,  wholly  or  in  part, 
the  least  radical  teaching  being  that  the  slaves  of  the  laity 
should  be  freed  when  Christianized. 

3.  And  closely  connected  with  the  doctrine  of  equality  was 
the  idea  of  a  natural  community  of  property.2    Originally,  and 
according  to  the  law  of  nature,  men  owned  all  goods  in  common. 

4.  One  of   Christianity's  teachings,  which  was  notably  at 
odds  with  the  ideas  of  antiquity,  was  that  concerning  the  dig- 
nity of  labor.     This  it  upheld,  though  not  without  some  ecclesi- 
astical adulteration,  and  the  ideal  became  a  force  working  for  a 
greater  recognition  of  those  who  ate  their  bread  in  the  sweat 
of  their  faces.3    The  various  biblical  maxims  concerning  the 
merit  of  industry  were  of  no  small  weight  to  the  men  of  this 
credulous  time. 

5.  Charity  and  almsgiving,  too,  were  among  the  cardinal 
virtues.     Not  only  the  writings  of  the  Old  Testament,  but  the 
words  and  spirit  of  Christianity,  taught  the  duty  of  giving  aid 
to  the  poor.     St.  Louis  advises  his  son  thus :   "  Dear  son,  have 
a  tender  and  pitiful  heart  for  the  poor,  and  for  all  those  whom 
you  believe  to  be  in  misery  of  heart  or  body,  and  according  to 
your  ability  comfort  and  aid  them  with  some  alms."    This 

1  "And  if  a  poor  man  have  a  quarrel  with  a  rich  man,  sustain  the  poor 
rather  than  the  rich,  until  the  truth  is  made  clear,  and  when  you  know  the 
truth,  do  justice  to  them."  (Advice  of  St.  Louis  to  his  son.) 

1  See  article  by  H.  H.  Swain  in  Bibliotheca  Sacra,  October,  1897,  on 
this  point.  3  Gen.  iii,  19. 


THE  MIDDLE  AGES  73 

quotation,  however,  suggests  two  limitations  upon  the  charity 
of  medieval  churchmen :  their  alms  were  in  theory  to  be  given 
only  to  those  recognized  as  being  in  real  need,  and  then  were 
to  be  in  proportion  to  the  donor's  means. 

6.  Finally,  Christianity  was  a  force  for  purifying  and  per- 
petuating the  family  and  family  life. 

Thus  the  Christian  religion  tended  to  introduce  elements 
which  were  deficient  in  the  philosophy  of  Roman  jurisprudence. 
The  personality  of  man  was  emphasized.  With  the  increased 
recognition  of  human  worth  came  the  introduction  of  moral 
and  humanitarian  ideas  which  added  new  limitations  upon  in- 
dividualism while  increasing  the  rights  of  many  individuals. 
In  fact,  one  cannot  but  be  impressed  with  the  idea  that,  on  the 
whole,  Christianity  and  Germanic  customs  worked  hand  in 
hand.  Their  fidelity,  their  relative  freedom,  their  greater 
equality,  their  emphasis  of  the  personal  element,  all  made  the 
Teutonic  folks  a  ready  medium  for  the  leaven  of  the  new 
religion. 

As  already  suggested,  the  foregoing  principles  of  Christianity 
were  considerably  modified  or  given  a  special  meaning  in  their 
practical  application  by  the  Church.  To  mention  but  an  in- 
stance or  two :  the  "  natural  law  "  of  equality  was  admitted  to 
be  modified  on  grounds  of  expediency  so  as  to  permit  inequality 
both  in  property  and  in  status.  Again,  charity  was  too  com- 
monly regarded  as  an  end,  as  a  pious  thing,  rather  than  as  a 
means  for  benefiting  society  or  the  poor.  So,  too,  with  manual 
labor:  it  was  regarded  rather  as  a  form  of  discipline  for  the 
attainment  of  salvation  than  as  a  means  for  producing  wealth. 
Pride  was  not  to  be  taken  in  the  craft,  and  the  main  interest 
was  not  to  be  in  the  product.  The  general  economic  develop- 
ment was  not  favorable  to  the  complete  advancement  from 
slavery,  and  the  Church  made  room  for  it  on  grounds  of  expe- 
diency. Serfdom  can  scarcely  have  disappeared  in  towns  by 
the  year  1000,  while  agricultural  serfdom  lingered  on  into  the 
nineteenth  century.  Still  there  was  the  tendency  toward  free- 
dom. 
Prior  to  the  thirteenth  century  the  church  fathers  concerned 


74  ECONOMIC  THOUGHT 

themselves  but  little  about  economic  matters.1  For  one  thing 
a  very  simple  independent  domestic  economy  prevailed;  and, 
on  the  other  hand,  purely  religious  ideas  were  in  control.  Con- 
sequently, one  finds  little  but  moral  dissertation  concerning  the 
evils  of  luxury,  and  the  like.  Among  the  most  noteworthy 
economic  ideas  were  those  concerning  the  desirability  of  wealth, 
value,  and  the  relative  merits  of  different  forms  of  industry. 
In  these  there  is  little  new.  Agriculture  was  praised;  manu- 
facture did  not  displease  God ;  but  trade  could  not  be  pleasing 
to  the  Deity.  Material  wealth  was  dangerous  to  spiritual  wel- 
fare, though  it  was  permissible  to  the  laity  if  used  for  the  good 
of  their  fellow  men.  As  to  value,  the  recognition  of  labor  was 
preparing  the  way  for  a  cost  theory  based  on  the  labor  element. 
The  general  notion  appears  to  have  been  that  value  is  absolute 
and  objective  and  independent  of  price.  Accordingly,  exchanges 
were  looked  upon  as  just  or  unjust  in  proportion  to  the  equality 
of  the  absolute  values ;  and  usury  was  forbidden  to  churchmen 
on  the  ground  that  in  the  taking  of  interest  a  greater  value 
would  be  exacted  than  that  given,  which  would  result  in  in- 
justice to  the  borrower. 

But  as  early  as  the  eleventh  century  progress  began.  With 
the  growth  of  monasteries,  towns,  handicraft,  and  commerce, 
and  the  increasing  use  of  money,  new  phenomena  were  pre- 
sented ;  while  in  the  twelfth  century  the  first  Latin  translation 
of  Aristotle's  Politics  found  its  way  into  western  Europe.  The 
latter  fact  marks  an  epoch  in  medieval  thought. 

Scholasticism  and  Canon  Law.  —  Neither  Christianity  nor 
the  Church,  but  part  of  each,  with  an  admixture  of  the  philosophy 
of  Aristotle,  was  scholasticism.  It  was  the  system  of  thought 
which  came  to  dominate  ecclesiastics  during  medieval  times; 
it  was  the  scholarship  of  the  Middle  Ages.  In  it  the  theological 
element  was  dominant,  and  no  advance  in  knowledge  was  con- 
sidered established  until  the  new  idea  was  fitted  into  its  niche 
in  the  structure  whose  foundation  was  religious.  It  cannot  be 
called  a  science,  for  it  did  not  seek  to  explain  phenomena  so 
much  as  to  apply  certain  absolute  rules  of  conduct  to  existing 
1  Cf .  above,  p.  20. 


THE  MIDDLE  AGES  75 

conditions.  The  last  word  was  said  after  a  citation  from  the 
Bible,  one  from  the  church  fathers,  and  now  and  then  one  from 
profane  history. 

It  is  not  improbable  that  the  progress  made  by  medieval 
scholars  in  economic  thought  has  often  been  underestimated, 
largely,  no  doubt,  because  their  methods  and  conclusions  were 
so  different  from  those  now  dominant.  It  was  Roscher's 
opinion  that  the  scholastics,  and  above  all  Scotus,  made  more 
progress  than  is  commonly  believed,  though  only  in  certain 
special  forms.  Most  valuable  is  that  part  of  their  work  devoted 
to  the  sacrament,  especially  the  sacrament  of  confession.  Here 
were  investigated  the  conditions  which  must  precede  the  abso- 
lution of  the  penitent  sinner  and  how  far  he  must  make  good 
his  wrong;  and  that  led,  in  the  case  of  sins  which  involved 
economy,  to  an  inquiry  into  the  nature  of  economic  institutions. 
The  conclusions  reached  will  be  discussed  in  a  moment.  The 
difficulty  was  that  economics  was  not  made  a  distinct  line  of 
thought.  The  monks  knew  little  outside  of  Aristotle's  writings, 
and  Aristotle  wrote  no  books  on  political  economy.1 

Thomas  Aquinas  has  been  called  the  prince  of  scholastics. 
He  it  was  who  with  infinite  pains  and  ingenuity  strove  to  weld 
the  teachings  of  the  Bible  and  of  Aristotle  into  a  harmonious 
body  of  thought.  And,  in  the  uncritical  judgment  of  his  con- 
temporaries, he  succeeded.  One  result  of  his  attempt  was  the 
celebrated  classification  of  laws  into  eternal,  natural,  human, 
and  divine.  The  first  is  the  controlling  plan  of  the  universe  as 
conceived  by  God;  that  part  of  it  which  can  be  grasped  by 
man  and  which  enables  him  to  distinguish  good  and  evil  is 
natural  law;  while  human  or  customary  law  consists  of  the 
enactments  of  earthly  powers.  Divine  law  is  that  part  of  the 
eternal  law  revealed  in  the  holy  writings.  Human  law  should 
be  based  upon  natural  law.  It  fell  into  two  parts:  civil  law 

1  This  explanation  is  given  by  Gasser,  Introduction  to  the  Economic,  Political 
and  Kameralistic  Sciences  (Halle,  1729),  as  a  reason  why  economic  subjects 
had  not  been  taught  in  the  German  universities.  A  work  under  that  title 
is  sometimes  attributed  to  Aristotle,  but  even  if  he  wrote  it,  it  does  not 
deal  with  economics  proper  in  any  distinct  way. 


76  ECONOMIC  THOUGHT 

(Roman)  and  canon  law  (church).  Canon  law,  or  the  Corpus 
Juris  Canonici,  was  coordinated  and  given  a  systematic  form 
about  the  middle  of  the  twelfth  century  by  the  monk  Gratian 
of  Bologna.  It  was  drawn  from  a  mass  of  ecclesiastical  legis- 
lation and  decisions,  thus  containing  elements  of  Christian  doc- 
trine, Aristotelian  philosophy,  and  Roman  law.  It  expressed 
the  judgment  of  orthodox  churchmen  concerning  human  rela- 
tions, and  so  contained  economic  ideas. 

Value  and  Just  Price.  —  Passing  over  ideas  concerning  wealth 
and  industry,  which  were  substantially  those  mentioned  above, 
one  reaches  the  heart  of  their  economic  thought  in  the  doctrine 
of  justum  pretium.  This  doctrine  rested  upon  their  notion  of 
value.  Briefly  stated,  it  was  that  every  commodity  had  some 
one  true  value  which  was  objective  and  absolute,  and  was  to 
be  determined  in  the  last  analysis  by  the  common  estimation 
of  the  cost  of  production.  The  words  "  was  to  be  determined  " 
are  used  deliberately,  for  the  doctrines  of  the  scholastics  are 
only  to  be  understood  when  considered  as  ethical,  —  as  laying 
down  what  should  be,  rather  than  scientific  conclusions  as  to 
what  is. 

As  formulated  by  Albertus  Magnus  (1193-1280)  and  Thomas 
Aquinas  (1227  or  1225-1274)1^16  theory  was  that  value  should 
equal  the  expenditure  of  labor  and  other  costs.  *  Thus,  according 
to  Aquinas,  one  might  lawfully  charge  more  than  one  had  paid 
"  either  because  he  has  improved  the  article  in  some  respect, 
or  because  the  price  of  the  article  has  been  changed  on  account 
of  difference  of  place  or  time,  or  on  account  of  the  danger  to 
which  he  exposes  himself  in  transferring  the  article  from  place 
to  place,  or  in  causing  it  to  be  transferred."  1  This  generaliza- 
tion, however,  was  qualified  to  the  extent  that  only  those  costs 
which  were  incurred  in  producing  things  which  satisfied  normal 
or  natural  wants  were  determining,  and  the  labor  element  was 
weighted  according  to  the  social  rank  of  the  laborer.2  This 
value  was  not  necessarily  expressed  in  price,  and  was  independent 

1  Quaestio  Ixxvii,   art.   iv,   Opera,  XIX,   p.    181.     Quoted    by    Sewall, 
Theory  of  Value  before  Adam  Smith,  p.  18. 
*  Cf.  Aristotle's  teaching,  above,  p.  48. 


THE   MIDDLE   AGES  77 

of  the  estimate  of  buyer  or  seller.  It  was  a  question  of  justice,1 
and  it  was  the  duty  of  the  law  to  step  in  and  fix  the  price  accord- 
ing to  the  above  principles.  It  was  quite  in  harmony  with  this 
conception  that  Charlemagne,  at  an  earlier  time,  ordained 
"  that  no  man,  whether  ecclesiastic  or  layman,  shall,  either  in 
time  of  abundance,  or  in  time  of  scarcity,  sell  provisions  higher 
than  the  price  recently  fixed  per  bushel."  2 

With  the  rise  of  towns  and  money  economy,  this  notion  of 
value  began  to  be  modified,  though  it  dominated  the  whole 
period  and  beyond.  Aquinas  gave  some  consideration  to  utility 
and  to  the  amount  offered  for  sale,  or  supply.  Buridan  (1300- 
1358)  went  farther  and  stated  that  the  measufe  of  value  is  to 
be  found  in  the  satisfaction  of  wants:  the  greater  the  need,  the 
higher  the  value.  And  Biel  (died  1495),  while  standing  for  a 
necessary  equality  in  value  of  goods  exchanged,  bases  it  upon 
their  utility  for  human  ends.3  But  when  all  has  been  said,  the 
conclusion  is  that  it  is  broadly  true  that  an  objective  cost  con- 
ception of  value  prevailed  during  the  Middle  Ages. 

Value  of  Money ;  Usury.  —  How  did  such  an  idea  of  value 
work  when  applied  to  money  ?  The  answer  to  this  question 
brings  up  ,the  well-known  doctrine  of  usury.  The  term  was 
used  to  cover  what  we  designate  as  interest,  and,  in  a  broader 
sense,  to  include  any  price  in  excess  of  the  justum  pretium :  qui 
plus  quant  dederit  accipit,  usuras  expetit.  At  first  (325  A.D.) 
usury  was  forbidden  the  clergy  only,  but  before  the  close  of 
the  twelfth  century  the  prohibition  was  extended  to  the  laity. 
As  late  as  1311  it  was  declared  absolutely  illegal.  The  broad 
simple  ground  for  this  action  was  the  belief  that  to  take  interest 
for  a  loan  of  money  was,  like  charging  more  than  the  just 
price,  unjust.  A  scholastic  brief  against  usury  might  be  drawn 
as  follows:  — 

i.   The  holy  writ  forbids  it:  The  Mosaic  law  prohibits  usury- 

1  "...  if  either  the  price  exceeds  the  value,  or,  conversely,  the  value 
exceeds  the  price  of  the  thing,  the  balance  of  justice  is  destroyed,"  wrote 
Thomas  Aquinas. 

2  Blanqui,  History  of  Political  Economy,  p.  112. 

3  Contzen,  Geschichte  der  volkswirthschaftlichen  Literatur  im  Mitielalter. 


78  ECONOMIC  THOUGHT 

taking  from  a  brother;  Christ  said,  "  Lend,  hoping  for  nothing 
again."     (Luke  vi,  35.) 

2.  Aristotle  says  money  is  barren  and  cannot  breed  money, 
therefore,  to  demand  usury  for  its  use  is  unjust. 

3.  It  follows  from  the  above  point  that  to  pay  for  money  is 
to  pay  for  time;   but  time  is  common  property  and  belongs  to 
God. 

4.  Money  is  a  Res  Fungibilis,  or  "  consumptible  "  according 
to  the  civil  law.     As  such  it  has  no  use  distinct  from  itself ;  its 
use  cannot  be  separated  from  the  ownership  of  it.     Therefore, 
to  lend  money  is  to  give  up  ownership  of  it,  and  to  ask  a  pay- 
ment for  the  use  of  that  which  is  sold  is  unjust.1 

As  in  the  case  of  the  general  concept  of  value,  the  develop- 
ment of  industry  and  exchange  wrought  a  gradual  modification 
of  the  doctrine  of  usury  or  value  of  money.  Aquinas  and  his 
brother  scholastics  recognized  exceptions:  for  example,  where 
a  loss  was  incurred  by  a  loan  (damnum  emergens)  or  a  profit 
was  missed  (lucrum  cessans)  a  corresponding  sum  might  be 
demanded  of  the  borrower.  Then  other  openings  were  made. 
A  buyer  on  credit  was  not  prohibited  from  paying  more  than 

1  The  reasoning  of  Aquinas  on  this  point  appears  in  the  following  quo- 
tation :  "To  take  usury  for  a  loan  of  money  is  in  itself  unjust ;  for  it  is  to  sell 
what  does  not  exist,  which  is  an  inequality,  and,  therefore,  an  injustice. 
To  understand  this  it  must  be  known  that  there  are  some  things  whose  use 
consists  in  the  consuming  of  them,  as  when  we  consume  wine.  ...  In  ar- 
ticles of  this  kind  [consumptibles],  therefore,  the  use  of  the  thing  must  not  be 
reckoned  separately  from  the  thing  itself ;  he  who  is  given  the  use  is  thereby 
given  the  thing.  And  accordingly  in  lending  a  thing  of  this  kind,  all  the 
rights  of  ownership  are  handed  over.  If  therefore  a  man  wanted  to  sell  wine 
and  the  use  of  the  wine  apart  from  one  another,  he  would  be  either  selling 
the  same  thing  twice  (meaning  that  the  use  is  the  wine),  or  would  be  selling 
what  did  not  exist.  Wherefore  he  would  be  manifestly  committing  injustice 
and  sinning.  For  the  same  reason,  he  would  commit  injustice  who  lent  wine 
or  corn,  seeking  for  himself  two  rewards,  the  restitution  of  an  equal  amount 
of  the  article,  and  also  a  payment  for  its  use,  called  usury." 

"  But  money,  as  Aristotle  says,  .  .  .  has  been  devised  for  the  making  of 
exchanges.  So  the  first  and  chief  use  of  money  is  its  consumption  or  spend- 
ing. Wherefore  it  is  in  itself  wrong  to  receive  (besides  the  return  of  the 
money  itself)  a  price  for  the  use  of  the  money."  (Quoted  by  Ashley,  Intro- 
duction to  English  Economic  History  and  Theory,  Vol.  I,  p.  153.) 


THE  MIDDLE  AGES  79 

the  cash  price;  discounts  were  allowed  on  bills  of  exchange; 
money  combined  with  labor,  as  in  partnerships,  was  called  pro- 
ductive; Jews  and  Lombards,  being  damned  anyhow,  were 
permitted  to  receive  usury;  and,  in  the  fifteenth  century,  the 
mantes  pietatis  were  allowed  to  receive  interest.1 

Economic  Functions  of  the  State.  —  Another  group  of  ideas 
held  by  the  scholastics  concerned  the  economic  functions  of  the 
state.  In  general  the  independent  domestic  economy  idea  was 
applied  to  a  large  group,  or,  in  other  words,  the  state  was  re- 
garded as  a  sort  of  great  private  or  domainal  economy.  The 
position  of  taxation  illustrates  the  situation.  In  the  twelfth 
and  thirteenth  centuries,  at  least,  the  office  of  the  ruler  seems 
to  have  been  regarded  as  private  property.  His  revenues  came 
from  his  estates  and  certain  prerogatives,2  and  there  was  no 
system  of  taxation  in  the  modern  sense,  for  that  represents 
more  modern  economic  thought. 

The  particular  functions  proper  to  government  were  the 
maintenance  of  population  and  provision  for  the  poor;  the 
establishment  of  safe  and  free  roads  —  a  Roman  conception 
backed  by  citations  from  the  Bible;  a  system  of  weights  and 
measures,  and  a  special  coinage.  The  argument  for  the  main- 
tenance of  weights  and  measures  was  that  it  would  decrease 
quarrels  and  litigation,  and  that  the  Bible  says,  "  God  has 
ordered  all  things  by  number,  weight  and  measure."  3 

The  duty  of  the  medieval  ruler  to  provide  an  exact  and  un- 
changing coinage  was  constantly  emphasized.  Virtually  with- 
out exception  this  right  was  possessed  by  him,  and  laws  were 
passed  to  prevent  counterfeiting  and  clipping.  The  exporta- 
tion of  coin,  as  also  the  circulation  of  foreign  coins,  was  fre- 

1  Gabriel  Biel,  Professor  of  Theology  at  Tubingen,  1485,  held  that  in 
deeds  of  partnership  any  rate  of  interest  was  allowable  according  to  the 
gains  of  the  capital  as  invested  by  the  debtor,  only  the  creditor  must  share 
any  loss.     Also,  if  one  partner  put  in  money  and  another  contributed  labor, 
the  labor  might  be  evaluated  in  terms  of  money,  and  the  profits  of  the  busi- 
ness be  shared  pro  rata.     See  Contzen,  Geschich.  d.  volkswirths.  Lit.  im  Mit- 
telalter,  index  under  Gabriel  Biel ;  and  Roscher,  Geschichte  der  Nat.  Oek.  in 
Deutschland ,  pp.  22  S. 

2  See  below,  p.  126.  *  Book  of  Wisdom,  ix. 


8o  ECONOMIC  THOUGHT 

quently  forbidden.  This  regulation  of  money  was  a  logical 
concomitant  of  the  doctrine  of  just  price :  the  supply  of  money 
being  small,  relatively  slight  changes  in  its  quantity  would 
affect  prices,  and  the  difficulties  of  transportation  made  read- 
justments slow.1  One  reason  advanced  by  Aquinas  why  a 
prince  should  provide  money  was  that  he  could  thus  get  food 
for  his  subjects  in  time  of  war. 

Monasteries.  —  Monasteries  might  be  made  a  distinct  factor 
in  the  life  and  thought  of  the  medieval  period.  They  were 
Christian  industrial  colonies  influencing  men  in  many  ways, 
both  by  precept  and  example.2  Objectively,  the  manual  activi- 
ties of  the  monks  improved  agriculture,  disseminated  industrial 
arts,  and  stimulated  commerce.  When  a  surplus  was  produced 
or  a  new  supply  of  raw  material  was  needed,  exchange  arose, 
and  the  principles  which  should  govern  the  "  negotiator  ec- 
fdesi&  "  in  economic  relations  with  the  outside  world  were  care- 
fully formulated.  Their  chief  service  was  to  "  diffuse  a  better 
appreciation  of  the  duty  and  dignity  of  labor,"  though  after 
the  tenth  century  this  service  waned. 

The  Economic  Thought  of  Medieval  Townsmen.3  —  Taking 
it  for  granted  that  the  reader  is  familiar  with  the  picturesque 
phenomena  of  medieval  towns,  with  their  gilds  and  market 
places,  it  remains  to  point  out  the  bearing  of  various  town  and 
gild  regulations  upon  economic  thought.  There  was  always  a 
large  element  of  monopoly  present  and  competition  as  we  know 
it  was  unthought  of.  Foreigners  were  admitted  to  the  trade 
of  the  town,  but  only  under  controlling  restrictions.  Thus 
they  were  subjected  to  tolls,  were  under  surveillance,  could  not 
sell  at  retail  save  under  great  restriction,  and  could  not  deal 
with  other  foreigners  unless  at  fairs  or  on  certain  days.  In 
these  regulations,  also,  appears  the  common  hostility  to  strangers. 

But  this  monopoly  was  a  public  one  and  in  the  interest  of  the 
community ;  trade  was  regarded  as  a  public  opportunity.  The 
idea  of  equality  and  of  public  benefit  appears  in  such  common 

1  See  Ashley,  Eng.  Econ.  Hist.,  Vol.  I,  p.  173. 

1  See  Cunningham,  Western  Civilization  in  its  Economic  Aspects,  pp. 
35-40.  »  Especially  in  England. 


THE  MIDDLE  AGES  8l 

regulations  as  that  sales  were  not  to  begin  before  a  certain  hour, 
that  unsold  goods  could  not  be  withdrawn  until  a  certain  time, 
and  that  raw  materials  —  as  tallow,  for  example  —  must  not 
be  sold  to  outsiders. 

The  universal  prohibition  of  forestalling,  regrating,  and  en- 
grossing illustrate  the  above  point,  and  are  also  connected  with 
the  idea  of  a  just  price.  Indeed  the  price  of  the  town's  manu- 
factures was  regulated;  and  that  of  the  trader's  merchandise 
was  fixed  within  certain  limits,  though  it  came  to  be  allowed 
a  maximum  and  minimum  within  which  it  might  play. 

And  this  suggests  the  minute  regulation  of  trade  and  industry, 
largely  through  the  agency  of  gilds,  a  regulation  which  char- 
acterized the  whole  economy,  and  which,  again,  was  commonly 
in  the  interest  of  the  consumer,  being  notably  so  in  the  case  of 
foodstuffs. 

An  interesting  feature  of  town  economy  was  its  communal 
property  and  undertakings.  Thus  a  common  town  pasture 
was  frequent;  many  towns  got  control  of  the  seignioral  mill 
(and  the  burghers  were  required  to  patronize  such  mills,  the  pro- 
ceeds often  going  to  decrease  taxes).  Bakeries,  ovens,  market 
places,  and  stalls  might  be  added  to  the  list.  Then,  too,  in 
times  of  scarcity  it  was  considered  the  duty  of  the  town  govern- 
ment to  furnish  grain.  It  sometimes  made  common  bargains 
with  foreign  merchants  for  the  materials  needed  by  its  artisans. 
Public  works  were  carried  on  by  the  compulsory  labor  of  the 
community. 

The  gilds,  which  were  more  or  less  closely  associated  with 
town  government,  serve  to  emphasize  much  the  same  line  of 
thought.  They  were  associations  of  merchants  or  craftsmen 
for  the  mutual  benefit  of  their  members,  having  as  their  ends 
protection,  monopoly  of  the  trade  or  craft,  good  workmanship, 
and  fraternal  and  religious  benefits.  These  associations  served 
to  train  men  in  business  ethics,  to  develop  personal  relation- 
ships, and  to  harmonize  the  interests  of  producer  and  consumer. 
And  the  craft  gilds  developed  skill,  protected  the  artisan,  and 
increased  the  dignity  and  worth  of  labor.  The  ideas  of  just 
price,  of  regulation  of  quality  and  quantity  of  output,  and  of 


82  ECONOMIC  THOUGHT 

wages  and  conditions  of  employment  characterize  their 
dealings. 

In  view  of  the  exaggeration  in  the  old  idea  concerning  the 
freedom  and  equality  in  towns,  it  remains  to  be  said  that  this 
idea  is  only  relatively  true.  Depending  upon  the  origin  of  the 
town,1  almost  from  the  beginning  there  were  three  or  four  distinct 
classes  which  successively  dominated.  A  considerable  number 
of  inhabitants  did  not  have  the  franchise,  and  the  craft  gilds, 
even,  were  in  part  monopolies  of  the  masters  (aldermen,  war- 
dens, commonalty)  against  the  serving  men. 

As  compared  with  rural  life,  however,  there  was  a  nearer 
approach  to  freedom  which  was  quite  marked  in  the  earlier 
times  in  England. 

General  Significance  of  the  Period.  —  The  general  signifi- 
cance of  the  Middle  Ages  as  a  period  in  the  evolution  of  eco- 
nomic thought  is  rather  difficult  to  state  by  reason  of  its  com- 
plexity. In  a  sense,  its  negative  aspect  is  large.  While  the 
chasm  left  by  the  downfall  of  Rome  may  have  been  exaggerated, 
yet  civilization,  as  it  had  been,  was  in  ruins.  As  to  its  positive 
characteristics,  the  Middle  Ages  constitute,  first,  a  period  of 
adjustment  and  fusing;  secondly,  one  of  transitions.  During 
its  centuries,  Roman  institutions,  standing  for  a  narrow  indi- 
vidualism and,  on  the  whole,  for  a  materialistic  philosophy; 
Christian  religion,  teaching  the  brotherhood  of  man  and  ideal- 
ism; Germanic  customs,  showing  a  broad  and  democratic 
individualism  and  leaning  toward  idealism ;  Aristotle's  philos- 
ophy, emphasizing  the  common  good  and  arguing  for  some  de- 
gree of  common  use  of  property,  with  a  correspondingly  limited 
individualism,2  —  all  these  were  to  be  combined  and  fused. 
This  was  more  or  less  consciously  the  work  of  the  scholastics. 
Thus  Thomas  Aquinas  labored  to  adapt  Aristotle  while  he 
assailed  Rome ;  and  one  Nicholas  von  Cusa,  while  deeply  versed 
in  the  contemporary  learning  of  the  Occident,  turned  his  atten- 

1  In  towns  which  grew  up  under  the  protection  of  some  clerical  noble, 
for  example,  all  the  aids,  etc.,  exacted  on  a  manor  might  be  rendered  by  the 
townsmen. 

2  See  above,  pp.  43  f.     Aristotle's  argument  against  communism  in  the 
ownership  of  property  is  deservedly  a  classic,  as  has  already  been  stated. 


THE  MIDDLE  AGES  83 

tion  to  the  East:  he  sought  to  reunite  the  Greek  and  Latin 
churches,  and  studied  the  holy  book  of  the  Mohammedans.1 

As  a  transitional  period  it  was  during  the  Middle  Ages  that, 
objectively,  national  economy  replaced  independent  domestic 
economy;  that  commerce  and  manufactures  encroached  upon 
the  sole  rule  of  agriculture;  and  that  slavery  was  gradually 
abandoned  for  serfdom  and  free  labor.  But  it  is  the  world  of 
thought  which  is  of  interest  here.  In  it  one  finds  a  transition 
from  the  materialism  of  later  paganism  to  the  modified  idealism 
of  Christianity.  At  the  same  time  the  individualism  of  the 
Romans  was  succeeded  by  the  idea,  of  a  society  broader  even 
than  the  city  state  of  the  Greeks,  though  not  so  broad  as 
the  dream  world-empire  of  the  Church.  We  pass  from  systems 
of  thought  which  postulate  a  natural  inequality  among  men, 
and  slavery,  to  ideals  of  brotherhood  and  freedom.  The  Church, 
too,  became  more  dissociated,  formally  at  least,  first  from 
politics,  then  from  industry,  thus  making  for  the  separation  of 
morals  from  economics  achieved  in  modern  times.  An  economy 
in  which  land  was  regarded  as  the  basis  began  the  great  tran- 
sition to  one  in  which  personal  relations  dominated.  In  one, 
industry  in  manufactures  and  trading  was  despised;  in  the 
other,  it  was  fostered ;  in  the  one,  money  was  imperfectly  under- 
stood and  men  generally  condemned  its  accumulation;  in  the 
other,  it  was  better  understood,  and  probably  came  to  be  over- 
appreciated.  Between  these  rather  opposite  views  lay  the 
Middle  Ages. 

During  this  great  transition  it  was  well  that  the  idea  of  pro- 
tection was  strong.  It  appears  in  the  Church  and  Christianity, 
in  the  towns  and  gilds ;  custom,  regulation,  monopoly,  are  met 
everywhere.  The  whole  economic  philosophy  of  the  Middle 
Ages  might  be  summed  up  in  the  doctrine  of  just  price.  In  a 
period  of  turmoil  among  such  great  opposing  systems  of  thought, 
and  classes  and  races  of  men,  before  the  rise  of  nations,  it  was 
well  that  the  idea  of  protection  was  strong. 

But  for  further  ideas  let  the  reader,  if  interested,  compare 
the  chapter  which  precedes  this  with  the  two  which  follow  next. 

1  Stumpf,  The  Political  Ideas  of  N.  v.  Cusa  (1865),  quoted  by  Contzen, 
Geschich.  d.  volkswirths.  Lit.  im  Mittelalter,  p.  65. 


III.  THE  DAWN  OF  MODERN  ECONOMIC 

THOUGHT:  MERCANTILISM  AND 

KAMERALISM 


CHAPTER  VII 
MERCANTILISM 

THAT  period  which  may  be  called  the  Middle  Ages  was  suc- 
ceeded by  two  or  three  centuries  that  looked  toward  modern 
systems  of  industry  and  thought.  The  old  garments  of 
"  natural  "  economy,  feudalism,  and  scholasticism  were  not  en- 
tirely cast  off ;  but  great  changes  were  being  worked  out.  The 
thought  of  the  period  now  to  be  considered  stands  in  a  different 
relation  to  us  than  the  theories  of  the  ancient  world  and  of 
the  Middle  Ages,  inasmuch  as  it  was  the  immediate  predecessor 
of  a  real  school  of  political  economy,  the  Physiocratic  system. 
Through  Adam  Smith  and  his  immediate  predecessors,  for  ex- 
ample, it  has  exercised  some  influence  upon  the  economic  specu- 
lation and  policy  of  English-speaking  peoples  down  to  the 
present  day. 

Preliminary  Definitions  of  Period  and  Doctrines.  —  The 
economic  ideas,  and  the  corresponding  policies,  characteristic  of 
men  of  this  first  post-medieval  period,  have  been  variously 
styled  Mercantile  System,  Colbertism,  Restrictive  System, 
Commercial  System,  and  Mercantilism.  As  they  do  not 
properly  form  a  system  and  do  not  belong  to  any  one  man  or 
fall  under  one  central  economic  idea,  Mercantilism  is  prefer- 
able. Perhaps  the  nearest  approach  to  a  definition  which 
might  be  safely  attempted  here,  would  be  to  say  that  Mercan- 
tilism comprises  the  economic  views  which  prevailed  among 
European  statesmen  from  the  sixteenth  to  the  latter  part  of 
the  eighteenth  century.  As  will  appear,  such  views  largely 
concerned  commerce  and  involved  much  restriction ;  but  these 
aspects  tell  only  part  of  the  story. 

"  Political  Arithmetic  "  was  a  phrase  much  used  by  the  Mer- 
cantilists with  reference  to  their  attempts  at  the  more  exact 

87 


88  ECONOMIC  THOUGHT 

solution  of  the  economic  problems  with  which  they  dealt. 
This  kind  of  arithmetic  they  denned  as  "  the  art  of  reasoning 
by  figures,  upon  things  relating  to  the  government."  l  Thus 
the  political  aspect  is  to  be  given  great  weight.  ^And,  on  the 
other  hand,  the  work  of  these  men  as  statisticians  is  to  be 
remembered.] 

It  is  difficult  to  tell  just  when  Mercantilism  came  to  be  the 
guiding  principle  of  state  policy,  or  when  its  sway  ended.  The 
truth  is  that  the  ideas  which  are  most  characteristic  of  the 
Mercantilists  have  always  existed  to  a  greater  or  less  extent. 
Travers  Twiss,  however,  dates  the  practice  of  Mercantilism 
from  the  accession  of  Charles  V  to  the  throne  of  Spain  in  1516 ; 
for  that  monarch  at  once  initiated  retaliatory  measures  against 
the  commercial  monopoly  of  Venice.  Be  that  as  it  may,  the 
date  corresponds  well  enough  with  the  growth  of  money  economy 
and  the  rise  of  nations,  —  the  two  phenomena  which  formed 
the  basis  of  Mercantilism.  v 

Mercantilism,  as  a  doctrine,  was  first  systematically  developed 
in  1613  by  an  Italian  writer,  Serra.  In  that  year  his  book,  A 
Brief  Treatise  on  the  Causes  which  make  Gold  and  Silver  abound 
in  Kingdoms  where  there  are  no  Mines,  was  published.  It  may 
be  said  truly  that  the  seventeenth  century  is  the  one  in  which 
the  most  numerous  and  characteristic  Mercantilist  writings  are 
found. 

Then,  with  the  Industrial  Revolution  and  the  growth  of 
political  freedom,  governments  began  to  abandon  Mercantilist 
principles  in  the  second  half  of  the  eighteenth  century. 

So  much  for  a  preliminary  definition  of  Mercantilism  and 
the  Mercantilist  period.  What,  then,  were  the  phenomena  and 
the  problems  that  gave  rise  to  them  ?  What  ends  did  the  Mer- 
cantilists have  in  view? 

Beside  the  more  remote  causes  which  led  to  investigation  in 
the  field  of  political  economy,  such  as  the  religious  and  intel- 
lectual awakening  of  the  times,  the  more  immediate  were  the 
break-up  of  the  feudal  system,  and  the  development  of  centrali- 
zation in  the  state.  These  factors  were,  of  course,  closely  re- 
1  Davenant,  Use  of  Political  Arithmetic. 


MERCANTILISM  89 

lated.  Also  related,  and  working  both  directly  and  indirectly, 
was  the  importation  of  gold  and  silver  from  America,  leading 
as  it  did  to  change  in  economy  and  prices  and  to  much  economic 
speculation. 

Furthermore,  royal  estates  and  prerogatives  no  longer  sufficed 
for  increased  government  expenses,  so  that  taxation  became 
necessary ; l  and  taxation  was  made  possible  by  an  increase 
in  saving,  or  capital  formation,  through  greater  security  and 
the  development  of  commerce  and  banking.  And  with  taxa- 
tion there  came  a  new  interest  in  the  economic  well-being  of  the 
people. 

In  the  introductory  discussion,  the  financial  difficulties  of 
governments  and  the  dissatisfaction  of  laboring  classes  with 
their  condition  appeared  as  two  of  the  most  fruitful  causes 
of  economic  speculation.  It  is  the  first  of  these  factors  which 
chiefly  stimulated  Mercantilistic  thought.  In  the  formation  of 
nations  and  states  two  great  relationships  and  two  sets  of  prob- 
lems arose,  one  external  and  one  internal.  Without,  there  was 
the  struggle  with  other  growing  states ;  a  struggle  between  the 
economies  of  the  local  units  and  the  central  government  was 
taking  place  within.2  Though  no  inconsiderable  misunder- 
standing of  Mercantilism  has  resulted  from  overlooking  its 
domestic  significance,  still  it  is  true  that  foreign  relations  fur- 
nished the  immediate  topic  for  the  most  typical  Mercantilist 
doctrines.  While  it  must  not  be  forgotten  that  the  interests  of 
the  nation  and  state  constituted  the  ultimate  end,  it  was  in  inter- 
national relations  that  "  those  governments  which  understood 
how  to  put  the  might  of  their  fleets  and  admiralties,  the  appa- 
ratus of  customs  laws  and  navigation  laws,  with  rapidity, 
boldness,  and  clear  purpose,  at  the  service  of  the  economic 
interests  of  the  nation  and  state,"  3  gained  their  supremacy. 
From  the  economic  point  of  view,  the  essence  of  Mercantilism, 
which  is  state-making,  can  be  appreciated  best  through  the 

1  See  below,  pp.  89,  126  f. 

2  In  what  follows  Schmoller's  Mercantile  System  has  been  most  suggestive. 
s  Schmoller,  The  Mercantile  System  (Ashley's  Economic  Classics  series), 

p.  72. 


90  ECONOMIC  THOUGHT 

chief  theories  and  policies  which  sprang  from  it  and  which 
make  up  Mercantilism  proper. 

The  increased  wants  of  the  new  states  were  occasioned  chiefly 
by  the  growth  of  standing  armies,  coupled  with  rising  prices. 
By  the  seventeenth  century,  warfare  was  vastly  changed.  For- 
merly there  had  been  an  hasty  expedition,  a  pitched  battle,  and 
the  issue  was  settled  by  courage ;  but  at  the  time  of  which  we  write, 
as  an  eminent  Mercantilist  states,  the  whole  art  of  war  seemed, 
in  a  manner,  reduced  to  money,  and  that  prince  who  could  best 
find  money  to  feed,  clothe,  and  pay  his  army,  not  he  who  had 
the  most  valiant  troops,  was  surest  of  success  and  conquest.1 

Thus,  "  since  war  is  grown  so  expensive,  and  trade  is  become 
so  extended ;  and  since  luxury  has  so  much  obtained  in  the 
world,  no  nation  can  subsist  of  itself  without  helps  and  aid 
from  other  places;  so  that  the  wealth  of  a  country  now  is  the 
balance,  which  arises  from  the  exchange  with  other  places,  of 
its  natural  or  artificial  product."  2 

To  Sir  Josiah  Child,  the  most  useful  and  necessary  inquiry 
was,  What  is  to  be  done  to  improve  the  nation's  trade  "  to 
such  a  degree  as  to  equalize  or  overbalance  our  neighbors  in 
our  national  profit  by  our  foreign  trade?  " 3 

These  things  are  mentioned,  not  for  the  sake  of  bringing  out 
the  balance  of  trade  idea,  as  such,  but  to  show  the  importance 
attached  to  international  relations.  The  hostility  of  the  Eng- 
lish toward  the  Dutch  between  1660  and  1675  might  also  have 
been  mentioned.  Robert  Clavell  published  a  pamphlet  (1665) 
which  was  one  of  several  attacking  the  Hollanders  and  claiming 
England's  ownership  of  adjacent  seas.  After  the  Dutch  were 
crushed,  hostile  activity  was  centered  on  the  French,  imports 
being  restricted  in  1678,  and  a  contemporary  pamphlet  pro- 
claimed that  "  The  French  grow  too  fatt."  4 

The  Policies  and  Theories  of  the  Mercantilists.  —  Though  it 
is  rather  difficult  to  generalize  concerning  the  theories  and 
policies  of  Mercantilism,  this  much  may  safely  be  said:  one 

1  Davenant,  An  Essay  upon  Ways  and  Means  (1695),  P-  J6- 

1  Ibid.,  p.  13.  3  Discourse  of  Trade,  p.  156. 

4  See  Hertz,  English  Public  Opinion  after  the  Reformation,  pp.  89,  97. 


MERCANTILISM  91 

great  purpose  dominated  it,  namely,  the  desire  to  make 
the  state  strong;  the  economic  basis  for  strength,  wealth,  was 
given  great  weight;  the  most  important  form  of  wealth  was 
considered  to  be  the  precious  metals  or  "  treasure  " ;  foreign 
trade  was  generally  preferred  above  other  forms  of  industry, 
as  best  furnishing  a  supply  of  the  desired  kind  of  wealth ;  and, 
in  measuring  the  success  of  this  policy  and  of  foreign  trade, 
great  importance  was  attached  to  the  so-called  "balance  of 
trade. "  The  dominance  of  a  political  teleology  has  been  made 
sufficiently  plain  in  what  has  gone  before,  and  the  emphasis  of 
wealth  will  need  no  special  comment.  It  remains,  then,  to 
discuss  the  last  three  generalizations. 

i.  The  Importance  of  "Treasure"  —  It  is  no  longer  held 
that  the  Mercantilists  believed  the  precious  metals  and  wealth 
to  be  identical,  or  that  they  thought  money  the  only  form  of 
wealth.  There  can  be  no  doubt,  however,  that  the  typical 
Mercantilist  sometimes  confused  the  two  things ;  and  certainly 
he  considered  money  the  most  desirable  form  of  wealth,1  draw- 
ing a  distinction  that  we  do  not  make  between  treasure  and 
other  forms  of  wealth.  One  or  two  utterances  from  Mercantilist 
writers  may  serve  to  let  the  reader  form  his  own  opinion  on 
this  point. .  In  his  Essays  in  Political  Arithmetick  (1655)  Sir 
William  Petty  makes  the  following  statement :  "  The  great  and 
ultimate  effect  of  trade  is  not  wealth  at  large,  but  particularly 
abundance  of  silver,  gold,  and  jewels,  which  are  not  perishable, 
nor  so  mutable  as  other  commodities,  but  are  wealth  at  all 
times,  and  all  places;  ...  so  as  the  raising  of  such,  and  the 
following  of  such  trade,  which  does  store  the  country  with 
gold,  silver,  jewels,  etc.,  is  profitable  before  others."  :  With  a 
similar  idea  Mun  wrote :  "  All  nations  who  have  no  mines  of 
their  own,  are  enriched  with  gold  and  silver  by  one  and  the 
same  means " :  by  exporting  goods  to  the  value  of  twenty- 

!  *  E.g.  "The  genera!  measures  of  the  trade  of  Europe,  at  present  are  gold 
and  silver,  which,  though  they  are  sometimes  commodities,  yet  are  the  ulti- 
mate objects  of  trade ;  and  the  more  or  less  of  those  metals  a  nation  retains 
it  is  denominated  rich  or  poor."  William  Richardson,  Essay  on  the  Causes 
of  the  Decline  of  the  Foreign  Trade,  1744.  2  p.  113. 


92  ECONOMIC  THOUGHT 

two  thousand  pounds  and  importing  twenty  thousand  pounds' 
worth,  "  we  may  rest  assured  that  the  kingdom  shall  be  en- 
riched yearly  two  hundred  thousand  pounds,  which  must  be 
brought  to  us  in  so  much  treasure."  l  Child  thought  it  a 
general  and  well-grounded  opinion  that  gold  and  silver  were  to 
be  taken  "  for  the  measure  and  standard  of  riches,"  and  urged 
that  by  trade  England  was  able  to  export  goods  which  brought 
back  "  six  times  the  treasure  in  specie." 

This  emphasis  of  money  as  the  most  desirable  form  of  wealth 
was  a  natural  and  not  unreasonable  result  of  conditions.  Though 
Mercantilism  is  not  to  be  attributed  directly  to  the  rise  of  a 
money  economy,  still,  the  growth  of  commerce,  the  changes 
in  methods  of  warfare,  and  the  introduction  of  the  wages  sys- 
tem gave  money  a  new  importance.  The  reader  must  remem- 
ber, too,  that  it  may  be  that  some  modern  economists  have 
tended  to  overlook  the  unique  characteristics  of  money  as  a 
form  of  wealth,  its  relatively  stable  value  and  ready  exchange- 
ability differentiating  it  to  some  extent  from  other  valuable  goods. 

Again,  there  was  not  the  opportunity  for  investment  open  to 
men  that  exists  to-day.  Industrial  stocks  and  bonds  were  vir- 
tually unknown,  and  money  took  their  place.  So,  too,  with  vari- 
ous credit  agencies.  To-day  they  abound  and  make  an  important 
part  of  our  medium  for  exchanges  as  well  as  form  a  means  of 
investment.  In  a  word,  the  relative  importance  of  the  precious 
metals  was  normally  greater  then  than  now. 

It  has  been  suggested  that  the  character  of  the  foreign  trade 
of  those  days  tended  to  increase  the  Mercantilists'  emphasis  of 
bullion.  When  spices,  silks,  wines,  and  the  like  played  so  im- 
portant a  part  in  exchanges,  it  was  not  so  strange  that  writers 
"  imagined  that  the  chief  use  of  foreign  trade  to  England  was  to 
introduce  gold  and  silver  rather  than  nutmeg."  2 

1  England's  Treasure  by  F  arraign  Trade  (London),  1669,  p.  n.  But  it 
would  be  easy  to  misunderstand  Mun  by  making  "treasure"  equivalent  to 
our  idea  of  the  word  "wealth." 

1  Cannan,  Production  and  Distribution,  p.  3.  The  force  of  this  observa- 
tion, however,  is  weakened  by  the  fact  that  foreign  trade  was  praised  and 
urged  as  a  means  for  obtaining  these  things. 


MERCANTILISM  93 

2.  Foreign  Trade.  —  As  to  the  means  to  be  adopted  for 
securing  the  desired  treasure,  that  prince  of  Mercantilists, 
Thomas  Mun,  wrote:  — 

"The  ordinary  means  ...  to  encrease  our  wealth  and  treasure 
is  by  Forraign  Trade.  .  .  .  This  ought  to  be  encouraged,  for  upon 
it  hangs  the  great  revenue  of  the  king,  the  honor  of  the  kingdom,  the 
noble  profession  of  the  merchant,  the  school  of  our  arts,  the  supply  of 
our  poor,  the  improvement  of  our  lands,  the  nursery  of  our  mariners, 
the  walls  of  the  kingdom,  the  means  of  our  treasure,  the  sinews  of  our 
wars,  the  terror  of  our  enemies." 

And  Mun  believed  that  only  the  treasure  so  gained  —  "  by  the 
ballance  of  our  forraign  Trade  "  —  remained  in  the  kingdom.1 

William  Petty  in  a  similar  strain  gave  it  as  his  opinion  that, 
"  There  is  much  more  to  be  gained  by  Manufactures,  than 
Husbandry,  and  by  Merchandise  than  Manufactures."  2  And 
Sir  Josiah  Child  held  that  those  trades  deserve  most  encourage- 
ment which  employ  most  shipping ;  "  for  besides  the  gain 
accruing  by  the  goods,  the  freight,  which  is  in  such  trades  often 
more  than  the  value  of  the  goods,  is  all  profit  to  the  nation."  3 

In  a  similar  vein  it  was  argued  that  the  sailor  was  at  once 
an  artisan,  a  soldier,  and  a  potential  merchant;  that  fleets 
were  valuable  for  defense;  and  that  only  through  foreign  com- 
merce could  countries  having  no  mines  obtain  the  coveted 
treasure  in  gold  and  silver. 

Of  course,  since  a  nation  could  not  export  without  producing, 
commerce  necessitated  manufactures.  Articles  of  high  specific 
value  alone  could  bear  the  expense  of  transportation,  therefore 
manufactures  were  favored  next  to  trade  and  above  agriculture. 

That  even  this  cardinal  Mercantilist  idea  did  not  pass  un- 
challenged, however,  appears  from  the  fact  that  in  his  Dis- 
courses upon  Trade,  Sir  Dudley  North  argued  that  foreign 
trade  could  not  subsist  without  home  trade.4 

1  England's  Treasure  by  Forraign  Trade  (published  1669),  p.  49;  Eco- 
nomic Classics  Series,  pp.  28-29.      First  edition  1664. 

2  Essays  in  Political  Arithmetick  (1691),  p.  100. 

3  Discourse  of  Trade,  Preface  (1690). 

4  North,  Discourses  upon  Trade  (1^-91),  p.  16. 


94  ECONOMIC  THOUGHT 

3.  The  Balance  of  Trade  Idea.  —  But  howsoever  great  a 
nation's  foreign  trade  might  be,  it  was  not  sufficient  unless 
there  was  a  proportionate  excess  in  value  of  exports  over  im- 
ports. This  was  the  balance  of  trade  notion.  Child  states 
the  doctrine  as  follows :  — 

"It  is  the  most  general  received  opinion,  and  that  not  ill  grounded, 
that  this  balance  is  to  be  taken  by  a  strict  scrutiny  of  what  proportion 
the  value  of  the  commodities  exported  out  of  this  kingdom  bear  to 
those  imported ;  and  if  the  exports  exceed  the  imports,  it  is  concluded 
the  nation  gets  by  the  general  course  of  its  trade,  it  being  supposed 
that  the  overplus  is  imported  in  bullion,  and  so  adds  to  the  treasure 
of  the  kingdom ;  gold  and  silver  being  taken  for  the  measure  and  standard 
of  riches."1 

Child  himself  considers  the  balance  of  trade  to  be  simply 
the  national  gain  or  loss  by  foreign  commerce,  and  thinks  the 
best  way  of  ascertaining  it  to  be  by  observing  the  general  state 
of  trade  and  shipping.  He  also  mentions  the  rate  of  exchange. 
Like  Mun  and  Davenant,  he  enlarges  on  the  difficulties  of  ascer- 
taining the  balance  with  any  degree  of  accuracy. 

But  without  further  illustration  it  may  be  observed  that  at 
least  four  somewhat  different  attitudes  toward  the  balance  of 
trade  may  be  found  among  Mercantilist  writers,  (i)  It  was 
the  original  or  vulgar  idea  that  a  favorable  balance  was  a  means 
or  instrument  by  which  the  stock  of  precious  metals  in  a  given 
nation  might  be  increased.  This  notion  was  apt  to  be  asso- 
ciated with  an  over-emphasis  of  treasure.  Furthermore,  it 
tended  to  confuse  the  means.,  with  the  end :  the  balance  of 
trade  must  ultimately  depend  upon  industrial  efficiency,  and  is 
thus  the  result  rather  than  the  means  of  securing  treasure. 
(2)  Or,  a  relative  conception  being  added,  it  might  be  regarded 
as  an  agency  for  outstripping  other  nations,  thus  involving 
the  fallacious  notion  that  what  one  nation  gained  another 
lost.  i  (3)  Some  looked  upon  the  balance  as  being  the  general 
"  net  profit "  of  the  nation  on  its  annual  trading,  embracing 

1  Discourse  of  Trade,  p.  153. 


MERCANTILISM  95 

specie,  credit,  and  commodities.1  (4)  While  still  others  saw  in 
it  simply  an  index  to  the  state  of  the  nation's  trade,  to  be  used 
like  the  rate  of  exchange,  the  amount  of  shipping,  etc.2  Of 
these  views  the  third,  with  its  specie  or  treasure  element  made 
by  far  the  most  prominent,  was  the  most  widely  prevalent. 

Such  writers  as  Barbon  (Discourse  of  Trade,  1690),  who 
attacked  the  balance  of  trade  idea,  can  hardly  be  classed  as 
Mercantilists. 

To  put  into  execution  the  foregoing  theories  and  policies 
involved  many  contributory  or  supporting  policies,  and  brought 
about  a  host  of  government  regulations,  duties,  and  bounties. 
An  interesting  attempt  at  classifying  the  various  measures 
calculated  to  enable  a  nation  to  overbalance  its  neighbors  in 
profits  by  foreign  trade,  was  presented  by  one  of  the  writers 
already  mentioned.  The  classification  embraces  four  general 
heads : 3  — 

I.  Increase  the  number  of  hands.    This  might  be  accomplished 
through  naturalization  laws,  religious  toleration,  freedom  to  hire  as 
many  servants,  looms,  etc.,  as  desired,  poor  relief,  and  education. 

II.  Increase  the  amount  of  stock.     In  addition  to  some  of  the 
above  measures,  a  law  for  the  transference  of  bills  of  debt,  the 
enforcement  of  the  navigation  acts,  various  protective  measures, 
and  fewer  holidays  were  advocated. 

III.  Make  trade  easy  and  necessary.     This  desirable  consum- 
mation was  to  be  attained  by  the  preceding  agencies  and  by  the 
establishment   of   a   court   merchant,    abatement   of   interest, 
adequate  convoys  at  sea,  etc. 

IV.  Make  it  the  interest  of  other  nations  to  trade  with  us.     By 

1  Davenant,  who  took  this  view,  uses  the  phrase,  "quick  stock"  (of 
the  people  of  a  nation)  as  equivalent  to  the  balance  of  trade.     Essay  on 
Ways  and  Means,  p.  13. 

2  These  different  uses  of  the  phrase,  "  balance  of  trade,"  are  not  coordi- 
nate except  in  the  broad  way  of  having  a  bearing  directly  or  indirectly  upon 
the  gain  of  the  state  by  foreign  trade.     The  fourth  use  of  the  phrase  might 
be  subdivided,  it  being  regarded  (a)  as  an  index  to  trade  in  general,  (b)  as 
an  index  to  trade  with  some  particular  nation. 

3  Compare  Mun,  England's  Treasure,  Chap.  Ill ;  and  Child,  Discourse, 
Chap.  I. 


96  ECONOMIC  THOUGHT 

gaining  their  respect  through  a  strong  navy  and  army;  by 
underselling,  honest  dealing,  wise  treaties,  and  restricting  im- 
ports of  manufactures,  this  end  might  be  attained. 

A  scrutiny  of  the  writings  of  the  chief  English  Mercantilists 
shows  that  the  government  policies  advocated,  —  and  these 
make  the  chief  feature  of  Mercantilism,  —  may  all  be  summed 
up  as  concerning  population,  its  size  and  character ;  the  develop- 
ment of  natural  resources;  and  various  commercial  devices.1 
Under  the  first  group  of  policies  would  come  the  advocacy  of 
toleration  and  freedom  of  conscience,  largely  to  attract  indus- 
trious foreigners;  careful  provision  for  the  poor  and  remedies 
for  unemployment  made  a  prominent  point  in  various  programs. 
Others  stressed  education,  especially  in  arithmetic  and  accounts ; 
while  all  agreed  that  "  parsimonious  "  and  thrifty  living  was 
imperative,  as  this  would  reduce  the  importation  of  foreign  wares 
and,  as  in  the  case  of  clothes,  leave  a  larger  surplus  for  export. 
Mercantilists  were  all  convinced  that  every  man  oweth  to  work, 
to  use  the  language  of  an  old  statute,  and  compellable  industry 
was  a  common  idea. 

As  to  natural  resources,  it  was  pointed  out  that  by  a  better 
utilization  of  waste  lands  things  then  imported  might  be  pro- 
duced at  home;  and  the  development  of  the  fisheries  was  an 
important  policy.  By  "  corn  laws  "  Mercantilists  strove  to 
stimulate  and  protect  agriculture  to  the  end  that  the  nation 
might  be  self-sufficient  and  support  an  abundant  population. 

There  is  space  to  mention  but  a  few  of  the  many  plans  for 
facilitating  and  increasing  commerce.  For  example,  there  was 
the  public  registry  of  mortgages  and  sales,  the  establishment  of 
banks,  the  greater  use  of  bills  of  exchange  to  allow  more  rapid 
settlements  and  turnovers,  free  importation  of  raw  materials, 
exportation  in  British  vessels,  etc.  Opinion  was  divided  as  to 
the  efficacy  of  lowering  the  interest  rate  by  law ;  but  not  a  few 
deemed  such  a  measure  of  the  utmost  importance. 

1  These  policies  were  largely  drawn  from  Holland,  for  whose  commercial 
methods  and  institutions  the  seventeenth  century  Englishman  had  great 
respect.  For  Holland's  thought  see  Laspeyres,  Geschichte  der  volkswirtsch. 
Anschauungen  der  Niederlander. 


MERCANTILISM  97 

Perhaps  this  is  the  place  to  refer  to  the  colonial  policy  com- 
mon to  Mercantilists.  Recent  discovery  and  conquest  had 
made  colonies  of  great  moment;  and,  in  accordance  with  the 
foregoing  ideas,  the  accepted  treatment  of  them  was  to  confine 
their  industry  as  largely  as  possible  to  the  production  of  raw 
materials,  with  the  idea  that  the  mother  country  should  work 
these  up  and  sell  the  finished  product  to  the  colonists.  The  net 
profit  of  the  nation  would  thus  be  increased. 

The  Mercantilist  ideas  concerning  money  easily  led  up  to 
the  various  land-bank  schemes  which  marked  the  close  of  the 
seventeenth  century.  Men  who  believed  that  an  increase  in 
the  quantity  of  the  circulating  medium  would  correspondingly 
increase  manufactures  and  trade,  especially  if,  as  was  often 
the  case,  they  also  believed  that  "  mony  is  a  value  made  by 
a  law,"  readily  fell  in  with  propositions  to  swell  the  monetary 
supply.  Such  men  appear  to  have  been  Chamberlen,  Briscoe, 
Barbon,  and  Asgill,  in  England,  and  Law,  in  France.  John 
Law  (1671-1729),  a  Scotchman  by  birth,  about  1716  succeeded 
in  establishing  a  great  land  bank  in  France,  but  after  a  pyro- 
technical  career  was  financially  ruined  in  1720.  His  pam- 
phlet, Money  and  Trade  considered,  with  a  proposal  for  supplying 
the  nation  with  money  (1705),  had  a  considerable  influence. 
In  it,  he  argued  that  "  wealth  depends  upon  commerce,  and 
commerce  depends  upon  circulation ; "  and  he  advocated  a 
paper  currency  based  upon  land.  This  whole  movement, 
however,  is  best  considered  as  a  by-product  or  side-issue  of 
Mercantilism :  it  is  not  characteristic  of  the  more  typical 
period  or  representatives  of  Mercantilism.  It  will  also  be 
observed  that  its  emphasis  upon  land  is  not  so  easily  explainable 
in  terms  of  Mercantilism  as  are  its  purely  monetary  aspects. 

The  Practical  Application  of  Mercantilist  Policies.  —  In 
accordance  with  such  ideas,  we  find  many  acts  for  the  encour- 
agement of  tillage,  corn  laws,  navigation  laws,  and  laws  creating 
and  regulating  the  staple,  sumptuary  laws,  assizes  of  bread  and 
ale.  Probably  it  was  in  France  under  Colbert  that  the  re- 
strictive policy  was  carried  farthest.  We  are  told  that  "  the 
state  exercised  over  manufacturing  industry  the  most  unlimited 


98  ECONOMIC  THOUGHT 

and  arbitrary  jurisdiction.  It  disposed  without  scruple  of  the 
resources  of  manufacturers ;  it  decided  who  should  be  allowed 
to  work,  what  things  they  should  be  permitted  to  make,  what 
materials  should  be  employed,  what  processes  followed.  .  .  . 
Not  the  taste  of  the  consumers,  but  the  commands  of  the  law 
must  be  attended  to.  ...  Machines  were  broken,  products 
were  burned,  when  not  conformable  to  the  rules.  .  .  .  An 
artisan  could  neither  choose  the  place  in  which  to  establish  him- 
self nor  work  at  all  seasons,  nor  work  for  all  customers.  There 
exists  a  decree  of  March  30,  1700,  which  limits  to  eighteen  towns 
the  number  of  places  where  stockings  might  be  woven.  A  decree 
of  June  1 8,  1723,  enjoins  the  manufacturers  at  Rouen  to  suspend 
their  works  from  the  ist  of  July  to  the  i5th  of  September,  in 
order  to  facilitate  the  harvest.  Louis  XIV,  when  he  intended 
to  construct  the  colonnade  of  the  Louvre,  forbade  all  private 
persons  to  employ  workmen  without  his  permission,  under 
penalty  of  10,000  livres,  and  forbade  workmen  to  work  for 
private  persons,  on  pain  for  the  first  offense  of  imprisonment 
and  for  the  second  of  the  galleys."  1 

In  Prussia  many  measures  were  adopted  to  foster  industry. 
These  were  partly  negative,  as  the  abolition  of  certain  gild 
restrictions;  and  partly  positive,  as  encouragements  to  immi- 
grate and  to  marry,  the  establishment  of  mills  and  manufac- 
tories, the  maintenance  of  lists  of  business  opportunities,  etc. 
There  were  also  the  usual  limitations  on  exportation  and  im- 
portation. The  policies  seem  to  have  been  very  wisely  applied.2 

Particular  Economic  Theories.  —  i.  Value.  —  Clear  evidence 
of  the  development  which  was  going  on  during  the  sixteenth  and 
seventeenth  centuries  in  industry  and  philosophy  appears  in  that 
part  of  economic  thought  which  was  devoted  to  value.  A  money 
and  exchange  economy  of  increasing  complication,  making  the 
application  of  the  relatively  simple  idea  of  just  price  imprac- 
ticable and  unsatisfactory,  was  joined  with  a  decreased  domina- 
tion of  moral  and  juristic  principles.  Material  things  were  more 

1  Dunoyer,  De  la  LiberM  du  Travail,  quoted  by  Mill,  Political  Economy, 
V,  xi,  7. 

1  See  appendix  to  this  chapter. 


MERCANTILISM  99 

regarded ;  and  a  long  step  was  taken  toward  the  development  of 
economic  science  by  a  growing  separation  of  ethical  concepts.  For 
to  an  increasing  extent  men  gave  their  minds  to  a  concrete  study 
of  political  or  economic  evils  and  the  remedies  for  them.  Sig- 
nificant of  the  time  was  the  rise  of  a  group  of  traders  and  states- 
men whose  empirical  writings  show  this  tendency,  It  should 
be  borne  in  mind  that  much  of  their  writing  was  that  of  the 
pamphleteer  and  lacks  the  breadth  and  balance  of  scientific 
treatises,  just  as  the  fugitive  pamphlets  of  to-day  are  apt  to  do. 

The  fruits  of  a  better  appreciation  of  human  personality  and 
its  worth  appear  in  the  works  of  a  group  of  publicists  and 
juristic  philosophers  who  emphasized  human  reason,  faculties, 
and  desires,  basing  their  law  of  "  nature  "  upon  the  so-called 
nature  of  man.  Thus  subjective  factors  came  into  new  promi- 
nence :  if  buyer  and  seller  were  satisfied,  the  price  was  just. 

It  must  be  noted,  however,  that  the  juristic  philosophers  were 
inclined  to  imply  ethical  principles,  while  the  traders  and  states- 
men generally  overlooked  the  subjective. 

Passing  over  a  group  of  Italian  writers  who  sapped  the  medi- 
eval idea  of  just  price,1  the  historian  must  mention  the  Dutch 
publicist,  Grotius,2  and  Pufendorf.3  Both  make  wants  and 
desires  an  important  element  in  value,  implying  a  distinction 
between  value  in  exchange  and  utility,  and  giving  a  considerable 
degree  of  validity  to  competitive  prices.  Pufendorf  stresses 
the  "  moral  estimation  "  idea,  and  says,  "  The  foundation  of 
the  price  or  value  of  any  action  or  thing  is,  fitness  to  procure 
either  mediately  or  immediately,  the  necessaries,  or  conveniences, 
or  pleasures  of  human  life."  And  the  effects  of  scarcity  and 
plenty  are  given  some  weight  by  him. 

But  in  the  thought  of  both  writers  the  notion  of  a  basal  value 
resting  on  cost  of  production  appears.  For  illustration,  Grotius 
said  that  "  account  is  commonly  taken  of  the  labor  and  ex- 
pense of  the  sellers ;  "  and  Pufendorf  held  that  in  regulating 

1  E.g.  Buoninsegni  (1591),  Scaccia  (1618). 

1  Dejure  belli  et  pacis  (1623),  Bk.  II,  Chap.  XII.     See  Laspeyres,  E., 
Gesch.  d.  volksw.  Anschauungen  der  Niederlander,  p.  3. 
*  DC  jure  naturae  et  gentium,  (1672),  Bk.  V,  Chap.  I. 


100  ECONOMIC  THOUGHT 

"  natural  price,"  "  regard  is  to  be  had  to  the  labor  and  expense 
of  the  merchant  "  and  his  risk. 

The  significance  of  these  men  in  this  connection  is  that  they 
kept  alive  the  importance  of  the  subjective  element,  and  sub- 
stituted for  the  just  price  conception  an  idea  of  "  natural  value  " 
in  which  the  play  of  competitive  forces  was  recognized. 

But  what  of  the  traders  and  statesmen,  the  empiricists? 
Here  one  finds  the  objective  notion  of  value  dominant,  —  the 
idea  of  value  inherent  in  the  object  and  arising  from  its  char- 
acteristics. Two  representatives  of  this  group  will  suffice, 
namely,  Petty  and  Locke.  Sir  William  Petty  makes  value 
rest  on  expenses  of  production,  reducing  them  to  labor  and 
land.  "  Labour  is  the  father  and  active  principle  of  Wealth, 
as  Lands  are  the  mother."  But  he  seeks  to  reduce  these  two  ex- 
penses to  a  single  unit,  "  so  as  to  express  the  value  of  anything 
by  either  alone."  1  Market  or  "  extrinsic  "  values  rose  or  fell  ac- 
cording to  supply  and  demand.  According  to  Locke,  labor  is  the 
almost  exclusive  source  of  value,  for  he  says,  "  it  is  labour  indeed 
that  puts  the  difference  of  value  on  everything."  2  "  Nay,  if  we 
will  rightly  estimate  things  as  they  come  to  our  use,  and  cast  up 
the  several  expenses  about  them,  what  in  them  is  purely  owing  to 
nature,  and  what  to  labour,  we  shall  find,  that  in  most  of  them 
ninety-nine  parts  out  of  a  hundred  are  wholly  to  be  put  on  the 
account  of  labor." 

These  two  writers,  then,  are  to  be  taken  as  forerunners  of  the 
later  labor  theories  of  value.  They  represent  the  majority  of 
English  Mercantilists  proper. 

It  remains  to  touch  upon  a  few  notable  exceptions.  The 
Italians,  Davanatzi,3  and  Montonari,4  and  the  Englishman, 
Nicholas  Barbon,5  will  suffice.  These  men  laid  the  greater 
emphasis  upon  utility  and  held  subjective  theories  of  value. 
Thus  Barbon  wrote :  "  The  value  of  all  wares  arise  from  their 

1  Petty's  Economic  Writings  (Cambridge,  1899),  Vol.  I,  p.  181.  See  Rost, 
Wert-  u.  Preis-Theorie,  p.  29  ff. ;  Sewall,  Theory  of  Value  before  A.  Smith, 
p.  70  ff.  2  Essay  on  Civil  Government  (1690),  London,  1772,  p.  210. 

3  Lezione  della  Moneta,  1588.  4  Delia  Moneta,  1680  circa. 

6  A  Discourse  of  Trade,  1690,  Chap.  III. 


MERCANTILISM  IOI 

use  ;  things  of  no  use,  have  no  value,  as  the  English  phrase  is, 
they  are  good  for  nothing"  And  again,  "  for  the  value  of  things 
depending  on  the  use  of  them,  the  over-pluss  ....  become 
worth  nothing  ;  so  that  plenty,  in  respect  of  the  occasion,  makes 
things  cheap  ;  and  scarcity,  dear." 

2.  Interest.  —  No  unanimity  exists  among  Mercantilist 
writers  on  the  subject  of  usury  or  interest.  Thomas  Mun, 
about  the  middle  of  the  seventeenth  century,  argued  in  favor 
of  interest  taking  on  the  ground  that  money-lending  enabled 
poor  young  merchants  to  rise  and  made  possible  the  advanta- 
geous employment  in  trade  of  the  funds  of  widows,  orphans, 
and  gentlemen.  As  to  the  nature  of  interest,  his  conclusion 
was  "  contrary  to  those  who  affirm  that  trade  decreaseth  as 
money  increaseth,  for  they  rise  and  fall  together,"  1  —  that  is, 
he  considered  the  interest  rate  as  a  result  rather  than  a  cause 
of  industrial  conditions. 

About  1668,  a  controversy  over  usury  laws  sprang  up.  In 
conflict  with  Mun's  views,  Sir  Thomas  Culpepper  had  written 
two  tracts  in  favor  of  establishing  lower  interest  rates  ;  2  and 
his  son  published  a  "  Discourse  "  attacking  usury.  But  per- 
haps the  most  eminent  sponsor  for  this  notion  was  Sir  Josiah 
Child.  He  maintained  that  a  low  interest  rate  was  the  natural 
mother  of  frugality  and  industry,  that  it  would  attract  traders 
by  making  capital  cheap,  and  compel  frugality  by  making 
smaller  "  profits  "  necessary  !  A  high  rate  of  interest  made 
money  scarce  because  every  man  as  soon  as  he  had  saved  a 
little,  sent  it  to  the  goldsmith.  The  whole  burden  of  such 
arguments  was,  "  We  shall  never  stand  on  even  ground  with 
the  Dutch  in  trade  till  interest  be  the  same  with  us  as  with  them."  3 
Likewise,  Davenant  took  a  fling  at  those  who  received  interest  : 

1  England's  Treasure  by  Forraign  Trade,  p.  127  ;  Economic  Classics  Series 
PP  77-8i. 

1  A  Tract  against  the  high  rate  of  Usurie,  1621  ;  ibid.,  1640.  In  the  first 
he  favored  reduction  from  10  to  8  per  cent  ;  in  the  latter  —  this  reduction 
having  been  made  —  he  desired  a  6  per  cent  legal  rate. 

3  Discourse  of  Trade,  pp.  27,  29,  167,  and  Preface;  for  the  situation  in 
Holland  see  Laspeyres,  Anschauungen  der  Niederla'nder,  p.  256. 


r:  pi1,! 


102  ECONOMIC  THOUGHT 

"  The  usurers,  who  are  the  true  drones  of  a  commonwealth, 
living  upon  the  honey  without  the  labor,"  should  be  taxed.1 

Most  of  these  men  thought  that  a  law  reducing  the  interest 
rate  would  be  effective  and  make  money  cheap.  Evidently 
they  got  the  cart  before  the  horse  and  made  the  effect  the  cause, 
all  of  which  indicates  a  lack  of  understanding  of  the  functions 
of  capital  and  money.2 

On  the  other  hand,  there  were  some  who  took  Mun's  side  in 
the  usury  controversy.  One,  Thomas  Manly,  explained  that 
"  as  it  is  the  scarcity  of  money  (and  many  borrowers)  that  maketh 
the  high  rates  of  interest,  ...  so  the  plenty  of  money  and  few 
borrowers  will  make  the  rates  low."  John  Locke,  too,  while 
not  understanding  the  causes  of  the  value  of  money,  argued  that 
low  interest  rates  were  the  result  of  a  plentiful  supply  of  money. 
And  Sir  Dudley  North  upheld  this  end  of  the  controversy, 
explaining  that  an  abundant  "  stock  "  and  security  made  rates 
low  in  Holland. 

Of  the  preceding  writers,  excepting  North,  it  may  be  said 
that  if  they  had  any  conception  of  the  relation  between  the 
productivity  of  capital  and  interest  it  was  but  a  faint  one. 
Their  notion  of  "  profits  "  was  naive  and  unanalyzed ;  "  usury  " 
was  simple  payment  for  the  use  of  money. 

Nicolas  Barbon,  however,  while  arguing  for  a  decreased  rate  of 
interest,  saw  this  relation ;  for  he  wrote :  "  Interest  is  commonly 
reckoned  for  mony ;  .  .  .  but  this  is  a  mistake ;  for  the  interest 
is  paid  for  stock.  .  .  .  No  man  takes  up  mony  at  interest, 
to  lay  it  by  him,  and  lose  the  interest  of  it."  3  And  North  in  his 
Discourses  upon  Trade  (1691)  is  perhaps  another  exception.4 

1  Essay  on  Ways  and  Means. 

1  Cossa,  in  his  Introduction  to  the  Study  of  Political  Economy,  certainly 
speaks  too  strongly  in  calling  Child  remarkable  for  his  sound  understand- 
ing of  money  without  noting  this  limitation.  By  Child's  time  money  was 
largely  invested  in  profitable  ways.  *  Discourse  of  Trade,  pp.  31,  32. 

4  "  But  as  the  Landed  Man  letts  his  land,  so  these  still  lett  their  stock ; 
this  latter  is  call'd  Interest,  but  is  only  Rent  for  Stock,  as  the  other  is  for 
land."  "...  if  there  be  more  Lenders  than  Borrowers,  Interest  will  also 
fall;  wherefore  it  is  not  low  Interest  makes  Trade,  but  Trade  increasing, 
the  Stock  of  the  Nation  makes  Interest  low."  (p.  4.) 


MERCANTILISM  103 

3.  Population;  Wages;  Rent.  —  It  would  be  wrong  to  make 
the  desire  for  a  dense  population,  as  such,  one  of  the  cardinal 
features  of  Mercantilism;   but,  partly  for  purpose  of  war  and 
partly    for    increase    in    production,  Mercantilists    desired    a 
numerous  people.     By  employing  many  people  the  king's  revenue 
would  be  increased.      Cheap  and  abundant  labor  was  necessary 
to  enable  home  products  to  compete  successfully  with  those  of 
foreign  countries ;   hence  the  laws  and  regulations  encouraging 
matrimony  and  parenthood.     Samuel  Fortrey  announces  that 
"  People  and  plenty  are  commonly  the  begetters  the  one  of 
the  other,  if  rightly  ordered  " ; *  Davenant  says,  "  People  are 
the  real  strength  of  a  country";2  and  Child,  that  "it  is  in 
multitudes  of  People,  and  good  Laws,  such  as  cause  an  Encrease 
of  People,  which  principally  Enrich  any  Country."  3 

The  Mercantilists  appear  to  have  had  no  theory  of  wages  or 
rent.  As  already  suggested,  they  were  more  or  less  unsystematic 
pamphleteers ;  and  their  ends  concerned  production  rather  than 
distribution.  It  is  true  that  Petty  saw  that  the  value  of  labor 
is  derived  from  its  product,  that  Child  stated  that  wage  regu- 
lation is  unwise,  etc. ;  and  the  latter  writer  observed  that  rent 
had  fallen  in  England  as  the  result  of  improvement  in  Ireland 
and  high  land  taxes.4  But  these  ideas  were  not  developed. 

4.  Factors  of  Production.  —  Of  more  significance    are  their 
utterances  concerning  the  factors  of  production :  these  have 
interest   in    connection    with    their   probable    influence    upon 
both  Physiocrats  and  Adam  Smith.     For  example,  Petty's  fa- 
mous dictum  "  Labour  is  the  father  and  active  principle  of  Wealth, 
as  Lands  are  the  mother,"  is  most  significant  in  both  relations. 
Child  refers  to  "  the  inseparable  affinity  that  is  in  all  nations 
and  at  all  times  between  land  and  trade,  which  are  twins,  and 
ever  will  wax  and  wane  together."     Davenant  keeps  the  foreign 
trade  idea  to  the  front,  remarking  that  "  the  price  of  land,  value 

1  England's  Interest  and  Improvement  (1663),  p.  4. 

J  Essay  on  Ways  and  Means.  A  dense  population  makes  invention,  frugal- 
ity and  industry  necessary,  which  bring  a  nation  riches. 

3  Discourse  of  Trade,  Preface.  (See  also  Petty,  Political  Arilhmetick,  pp. 
107,  123;  Barbon,  Discourse  of  Trade,  p.  39.)  4  Ibid.,  p.  n. 


104  ECONOMIC  THOUGHT 

of  rents  .  .  .  rise  and  fall,  as  it  goes  well  or  ill  with  "  commerce ; 
but  delivers  himself  of  the  following  generalization:  "The 
wealth  of  all  nations  arises  from  the  labour  and  industry  of  the 
people,"  1  a  statement  which  reminds  one  of  Adam  Smith. 

Barbon,  who  was  hardly  a  Mercantilist,  said  that  "  land  is  the 
fund  that  must  support  and  preserve  the  government,"  and  was 
himself  interested  in  a  land  bank. 

5.  Productivity  of  Different  Occupations.  —  In  general,  as  al- 
ready remarked,  Mercantilists  believed  that  the  merchant  was 
"the  best  and  most  profitable  member  of  the  commonwealth," 
and  that  after  him  came  the  artisan.  One  of  their  number  makes 
a  summary  statement  which  covers  the  whole  matter  of  produc- 
tive and  unproductive  labor.  He  writes :  "  It  is  (I  think)  agreed 
on  by  all  that  Merchants,  Artificers,  Farmers  of  Land  2  and  such 
as  depend  on  them  . . .  are  the  three  sorts  of  people  which  by 
their  study  and  labour  do  principally,  if  not  only,  bring  in  wealth 
to  a  nation  from  abroad ;  other  kinds  of  people,  viz.  Nobility, 
Gentry,  Lawyers,  Physicians,  scholars  of  all  sorts,  and  shop- 
keepers, do  only  hand  it  from  one  to  another  at  home."  3 

These  ideas  are  of  significance  in  the  history  of  economic 
thought  in  two  ways:  they  indicate  a  great  change  from  the 
times,  medieval  and  ancient,  in  which  agriculture  was  placed 
first ;  and  they  are  to  be  associated  with  the  notions  of  Adam 
Smith  and  the  Physiocrats  concerning  the  non-productivity  of 
certain  classes.  It  is  of  no  little  interest,  and  importance,  too, 
to  observe  how  economists  have  denied  productivity  now  to  this 
class,  now  to  the  other. 

The  belief  that  certain  occupations  are  not  so  productive  as 
others,  all  things  considered,  has  been  a  long-continued  one. 
The  intermingling  of  ethical  ideas  makes  it  difficult  to  compare 
these  beliefs;  but  it  may  be  said  that  they  are  determined 
largely  by  the  dominant  class.  Thus,  in  the  Middle  Ages,  agri- 
cultural interests  dominated ;  by  the  seventeenth  century,  com- 
merce was  in  the  ascendency ;  in  the  middle  of  the  eighteenth 

1  "  Of  the  Use  of  Political  Arithmetic,"  Works,  Vol.  I,  p.  139.  (Lon- 
don, 1771.) 

1  Note  the  order.  *  Child,  Discourse  of  Trade,  p.  25. 


MERCANTILISM  105 

century,  as  will  appear  later,  there  was  a  renewal  of  interest  in 
agriculture ;  while  the  Industrial  Revolution  put  manufacturing 
interests  to  the  front.  Accordingly,  the  Mercantilists  thought 
that  as  gentry,  professional  men,  and  retailers  had  little  connec- 
tion with  bringing  in  treasure,  they  were  in  that  sense  non-pro- 
ductive; while  in  1776  Adam  Smith  considered  that  similar 
classes  were  not  productive  in  the  sense  that  they  did  not  put 
vendible  goods  on  the  market. 

6.  Taxation.  —  Worthy  of  notice,  also,  is  the  thought  of  the 
Mercantilists  on  taxation.  In  general  their  idea  was  that  men 
should  be  taxed  according  to  the  benefits  received  from  the 
state.1  This  idea  was  in  accord  wjtk-the  prevalent  notion  of  a 
"social  contract."  According  toiHpbbe^,  the  test  for  benefit 
should  be  expenditure.  The  man  who  saves  should  not  be  penal- 
ized ;  "  when  the  impositions  are  laid  upon  those  things  which 
men  consume,  every  man  payeth  equally  for  what  he  useth,  nor 
is  the  commonwealth  defrauded  by  the  luxurious  waste  of  pri- 
vate men."2  Grotius  and  Pufendorf  held  that  burdens  must 
correspond  to  benefits  received  in  the  shape  of  protection. 

Sir  Wm.  Petty  has  been  called  the  first  English  scientific  writer 
on  taxation.  His  words  are :  "  It  is  generally  allowed  by  all  that 
men  should  contribute  to  the  Publick  charge,  but  according  to  the 
share  and  interest  they  have  in  the  Public  Place ;  that  is  accord- 
ing to  their  Estate  and  Riches." 3  He  favored  the  expense 
index,  that  is,  taxation  in  proportion  to  expenditure. 

Other  Mercantilist  empiricists  dealt  with  this  important  sub- 
ject at  some  length,  and  formulated  several  practical  doctrines. 
In  general,  low  customs  and  an  increased  use  of  excise  taxes  were 
favored.  Equality  in  taxation  was  urged,  and  to  this  end  a  tax 
on  money  at  interest,  —  while  the  impracticability  of  taxes  on 
easily  concealed  wealth  was  seen.4 

James  Steuart :  the  last  of  the  "  Mercantilists."  —  Sir  James 

1  See  Seligman,  Progressive  Taxation  in  Theory  and  Practice,  pp.  158, 
162.     (Publications  of  the  American  Economic  Association,  1908.) 

2  Leviathan,  p.  271.     (Reprint  of  1881.) 

3  A  Treatise  of  Taxes  and  Contributions  (1677),  p.  68. 

4  See  Davenant's  Essay  on  Ways  and  Means. 


106  ECONOMIC  THOUGHT 

Steuart l  (1712-1780)  was  the  chief  English  Mercantilist  writer 
of  the  eighteenth  century.  Indeed  he  has  been  called  the  last 
of  the  Mercantilists.  Following  the  Stuarts  into  exile  in  1745,  he 
lived  in  France,  Germany,  Holland,  and  Italy;  and  his  book 
(1767)  is  largely  a  collection  of  observations  made  during  this 
time.  Its  title  is  An  Inquiryinto  the  Principles  of  Political  Econ- 
omy, being  an  essay  on  the  Science  of  Domestic  Policy  in  Free 
Nations,  in  -which  are  particularly  considered  Population,  Agri- 
culture, Trade,  Industry,  Money,  Coin,  Interest,  Circulation, 
Banks,  Exchange,  Public  Credit  and  Taxes.  This  seems  to  be 
the  first  use  of  the  term  Political  Economy  in  an  English  book. 
His  idea  of  the  science  has  Mercantilistic  earmarks :  "  (Economy 
in  general  is  the  art  of  providing  for  all  the  wants  of  a  family 
with  prudency  and  frugality.  What  ceconomy  is  in  a  family, 
political  oeconomy  is  in  a  state.  .  .  .  The  principal  object  of 
this  science  is  to  secure  a  certain  fund  of  subsistence  for  all  the 
inhabitants  "  and  to  render  it  secure,  etc.  Economics  is  an 
art.  Mercantilist  ideas  concerning  population  also  appear. 

Money  and  banking  are  treated  at  considerable  length. 
Steuart  justifies  interest,  but  has  no  clear  understanding  of  capi- 
tal— as  was  commonly  the  case  before  the  Industrial  Revolution. 
Also,  like  Child,  he  feels  that  a  low  rate  of  interest  would  be  bene- 
ficial, only  governmental  measures  to  secure  it  should  be  gradual. 

He  has  some  sound  ideas  on  price,  regarding  it  as  determined 
by  demand  and  supply,  and  distinguishing  "effectual "  demand ; 
and  Adam  Smith  has  been  criticized  not  unjustly  for  not  refer- 
ring to  Steuart  on  this  point,  as  Steuart's  work  was  well  known 
to  him. 

It  is  interesting  to  observe  the  influence  of  French  thought 
upon  Steuart.  In  France  the  Physiocratic  doctrines,  to  be 
described  shortly,  were  taking  shape.  Accordingly  we  find  stress 
laid  upon  the  agricultural  surplus  as  conditioning  the  growth  of 
population  and  industry,  and  his  model  state  was  pervaded  with 
a  characteristic  unity  and  harmony. 

1  Feilbogen,  "  James  Steuart  u.  A.  Smith,"  in  Zeitschr.  f.  d.  ges.  Staats- 
wissenschaft  (1889);  Hasbach,  Untersuchungen  iiber  A.  Smith,  pp.  81  ff. 
(1891). 


MERCANTILISM  107 

The  book  is  diffuse  and  woefully  lacking  in  clear  definition  and 
accurate  statement.  This  fact,  together  with  the  changes 
wrought  by  the  Industrial  Revolution  and  the  appearance  of 
Smith's  Wealth  of  Nations,  deprived  Steuart's  work  of  any  con- 
siderable recognition  or  effect,  though  it  appears  to  have  had 
some  influence  in  Germany. 

Critical  Estimate  and  Summary.  —  It  must  not  be  thought  for 
a  moment  that  the  preceding  statements  will  apply  to  all  writ- 
ers who  may  properly  be  called  Mercantilists,  nor  that  they  will 
apply  in  their  entirety  to  any  one  of  them.  In  some  cases  they 
are  generalizations  or  analyses,  which  the  men  of  the  seventeenth 
century  do  not  appear  to  have  made  expressly.  In  other  cases 
there  were  exceptions,  some  of  which  have  been  pointed  out. 
But  it  is  believed  that  a  congress  of  Mercantilists  would  have 
agreed  by  a  large  majority  vote  to  any  of  the  above  propositions 
which  have  been  made  in  a  general  way. 

The  conclusions  to  be  drawn  from  the  foregoing  discussion 
seem  to  be  that  the  Mercantilists  were  inclined  to  lay  too  much 
weight  on  the  advantage  of  gold  and  silver  as  compared  with 
that  of  other  commodities ;  that  they  overestimated  the  value  of 
commerce,  or,  perhaps  it  would  be  better  to  say,  underestimated 
the  relative  importance  of  agriculture  and  other  branches  of 
human  industry ;  and  that  they  erred  in  supposing  that  a  favor- 
able balance  of  trade  necessitated  a  benefit  in  the  long  run.  They 
were  in  error,  too,  in  being  too  much  inclined  to  regard  what  one 
nation  gained  as  necessarily  the  loss  of  another.  A  harmony 
of  interests,  it  is  true,  does  not  always  obtain  as  between  differ- 
ent countries.  A  good  part  of  what  England  gained  by  the  Navi- 
gation Act,  Holland  lost ;  American  competition  is  to-day  injuring 
very  sensibly  the  interests  of  important  classes  in  England  and 
on  the  Continent.  Nevertheless  a  more  scientific  examination 
into  the  theory  and  practice  of  international  trade  was  ere  long 
to  show  economists  that  both  parties  generally  gain. 

Industrial  developments  led  the  Mercantilists  to  abandon  the 
doctrine  of  just  price,  though  traces  of  the  idea  may  be  found, 
and  they  were  forced  to  give  more  consideration  than  their  pred- 
ecessors to  subjective  elements  in  "  extrinsic  "  or  market  values. 


108  ECONOMIC  THOUGHT 

A  cost  theory  of  value  with  the  labor  element  emphasized  was 
held  or  implied  by  some  of  the  most  prominent  writers.  On  the 
whole,  interest  was  defended  and  a  few  had  some  inkling  of  the 
reasons  for  it.  Many,  however,  thought  it  was  something  to  be 
determined  by  the  state,  and  thus  showed  imperfect  ideas  about 
capital. 

Criticism  of  the  Mercantilists'  ideas  has  been  carried  too  far 
in  not  a  few  cases.  They  contained  errors  unquestionably,  and 
the  germs  of  an  unhealthy  development ;  but  they  are  far  from  a 
mass  of  absurdities  when  considered,  as  they  must  be,  with  re- 
gard to  time,  place,  and,  above  all,  to  the  spirit  of  the  people.  It 
is  nonsense  to  think  of  exports  exceeding  imports  in  all  countries. 
But  the  Mercantilists  never  claimed  this  belief.  They  did  not 
generalize.  They  were  laying  down  the  principles  of  a  national 
political  economy,  not  a  cosmopolitan  one.  War  was  the  normal 
thing,  and  a  large  degree  of  self-sufficiency  a  practical  necessity. 

Some  explanation  of  their  ideas  concerning  treasure  has  already 
been  given.  Now  let  it  be  forgotten  for  the  moment  that  gold 
and  silver  are  money,  and  let  them  be  considered  merely  as 
other  commodities.  Then  let  the  question  be  put :  how  is  a 
people  which  has  not  the  commodity,  gold,  or  the  commodity,  sil- 
ver, but  has  other  commodities,  to  obtain  the  former  peacefully  ? 
The  reply  is  simple :  by  exchanging  commodities.  One  can  con- 
ceive of  no  other  way.  Now  that  is  one  thing  which  the  Mer- 
cantilists of  England,  France,  and  Germany  wished  to  do.  They 
wished  to  trade  off  some  of  their  wares  for  gold  and  silver,  and 
they  actually  accomplished  their  purpose.  Spain  lost  gold  and 
silver,  and  they  obtained  it.  As  a  temporary  expedient  under 
existing  conditions,  the  balance  of  trade  theory  was  justifiable. 
The  Mercantilists  erred  chiefly  in  so  far  as  they  regarded  it  as  a 
proper  permanent  national  policy.  But  is  the  error  not  natural  ? 
Most  men  hold  the  same  notion  to  this  day,  and  that  without 
the  reasons  which  existed  over  two  hundred  years  ago ! 

To  apply  a  practical  test,  it  may  be  said  that  Mercantilism 
was  for  a  time  fairly  successful.  The  French  free  trader,  Blan- 
qui,  acknowledged  freely  the  benefits  France  derived  at  one  time 
from  a  governmental  supervision  of  trade  and  commerce. 


MERCANTILISM  109 

Even  Adam  Smith  admits  that  Cromwell's  famous  Navigation 
Acts,  which  prohibited  foreigners  from  bringing  into  England 
any  goods  that  were  not  the  product  of  their  own  country,  was  of 
advantage  to  England,  and  approves  of  them.  As  to  German  Mer- 
cantilism, Mirabeau  wrote  of  Silicia,  a  region  which  received 
particular  attention  from  Frederick  the  Great,  "There  reigns 
there  a  population,  a  culture,  and  an  industry  truly  immense." 
And  other  contemporaries  confirm  this,  explaining  the  want  of 
prosperity  in  other  German  states  by  a  lack  of  proper  initiative 
on  the  part  of  the  governments.  Under  the  conditions  of  the  time 
there  was  a  lack  of  energy  and  go-ahead  on  the  part  of  private 
individuals,  so  that  when  the  government  did  not  lead,  stagnation 
in  industry  was  the  rule. 

Coupled  with  this  idea  is  the  fact  that  Mercantilistic  philoso- 
phy was  based  upon  a  belief  that  private  and  social  interests  are 
not  necessarily  in  harmony.  The  reader  of  the  Mercantilist 
pamphlet  was  to  distinguish  warily  between  the  profit  of  the 
merchant  and  the  gain  of  the  kingdom,  for  "  frequently  they  run 
counter  one  to  the  other."  1  This  concept  by  no  means  had  the 
content  of  the  similarly  worded  one  common  to-day,  nor  did  it 
lead  to  all  the  conclusions  now  drawn ;  but  then,  as  now,  regu- 
lation of  industry  by  the  state  was  the  logical  outcome. 

The  essence  of  Mercantilism  proper  was  the  application  of  the 
independent-domestic-economy  idea  of  self-sufficiency  to  na- 
tions, —  an  old  system  of  thought  to  a  new  group  of  phenomena. 
One  sees  it  in  the  attitude  of  the  state  toward  trade  and  industry ; 
it  appears  in  the  balance  of  trade  idea ;  it  lies  back  of  the  over- 
estimation  of  precious  metals.  This  was  more  or  less  conscious 
with  the  Mercantilists.  Mun  wrote  concerning  the  balance  of 
trade :  "...  it  cometh  to  pass  in  the  stock  of  a  kingdom,  as  in 
the  estate  of  a  private  man."  Child  puts  it  as  follows :  there  is 
"  a  great  similitude  between  the  affairs  of  a  private  person,  and 
of  a  nation,  the  former  being  but  a  little  family,  and  the  latter  a 
great  family."  2 

It  is,  then,  simply  the  idea  that  has  always  dominated  the 
trader  and  which  is  prevalent  among  merchants  to  this  day: 

1  Child,  Discourse  of  Trade,  preface.  *  Discourse  of  Trade,  p.  164. 


HO  ECONOMIC  THOUGHT 

patronize  home  industry;  so  conduct  your  business  that  the 
profit  and  loss  account  of  the  year's  trading  shows  a  balance  in 
your  favor ;  etc.  "  Whatever  nation,"  says  Davenant,  "  is  at 
a  greater  expense  than  this  balance  admits  of,  will  as  surely  be 
ruined  in  time,  as  a  private  person  must  be,  who  every  year 
spends  more  than  the  income  of  his  estate." 

Thus  we  arrive  at  a  body  of  government  regulation  of  com- 
merce and  industry  directed  toward  securing  a  large  net  profit  for 
the  state  as  a  trader,  in  the  shape  of  treasure.  This  is  Mercan- 
tilism proper. 

APPENDIX  TO  CHAPTER  VTI 

Through  Professor  Gustav  Schmoller's  admirable  little  work  on 
German  Trades  in  the  Nineteenth  Century  l  we  can  trace  in  detail 
the  operations  of  Mercantilism  in  Germany.  From  1650  to  1800 
Prussian  industry  was  directly  under  the  guidance  of  the  state  authori- 
ties. It  is  true  that  in  some  respects  the  monarchs  of  Prussia  exer- 
cised their  power  to  increase  industrial  liberty ;  but  only  in  so  far  as 
it  seemed  good  to  them,  and  they  never  let  the  reins  slip  out  of  their 
hands. 

The  Great  Elector,  Frederick  William,  issued  edicts  in  1667,  1669, 
and  1683  to  encourage  the  cultivation  of  places  that  had  been  laid 
waste  by  the  Thirty  Years'  War.  One  measure  attempted  to  draw 
people  to  the  cities  by  removing  the  tax  (den  Schoss-scot)  resting  on 
houses  and  substituting  an  excise  (Accise)  in  the  cities,  with  the 
expectation  that  this  would  cheapen  houses  and  reduce  the  cost  of 
living.  This  was  not  a  financial  but  a  political  measure,  it  must  be 
noted,  and  was  an  act  of  state  interference.  It  had  the  desired  effect. 
A  large  demand  for  houses  manifested  itself  in  the  Prussian  cities,  and 
many  merchants  and  tradesmen  immigrated.  Edicts  were  issued 
in  1686  and  1688  to  improve  the  whole  organization  of  the  trades. 
Many  restrictions  which  the  gilds  had  kept  in  force,  limiting  the 
number  of  masters,  journeymen,  and  apprentices,  were  removed.  All 
immigrants  received  free  of  charge  the  rights  of  a  master  tradesman 
and  those  of  a  citizen.  The  linen  industry  in  Ravensberg  in  West- 
phalia was  assisted  by  an  institution  of  state  for  measuring  the  length 
and  breadth  and  determining  the  quality  of  linen  and  stamping  it 

1  Die  Deutschen  Kleingewerbe  im  ipten  Jahrhundert  (Halle,  1870). 


MERCANTILISM  III 

accordingly.  The  effect  of  this  was  to  give  purchasers  confidence  in 
the  products  of  the  manufacturers. 

Frederick  I,  who  reigned  as  king  from  1701  to  1713,  continued  the 
policy  of  the  Great  Elector.  Immigration  was  artificially  encouraged. 
Magdeburg  was  rebuilt  by  settlers  out  of  the  Palatinate.  Up  to 
1690,  forty- three  new  kinds  of  trades  had  been  established  in  the  Mark, 
the  province  in  which  Berlin  is  situated,  by  the  French  and  the  Wal- 
loons. 

Frederick  William  I  ("der  sparsame  kluge  hausvaterliche  Tyrann"), 
who  reigned  from  1713  to  1740,  went  still  farther  in  the  direction  in 
which  his  predecessors  had  gone.  He  forbade  the  exportation  of  raw 
material,  especially  of  wool.  The  importation  of  foreign  manufac- 
tured articles  was  either  entirely  forbidden  or  rendered  difficult  by 
the  imposition  of  heavy  duties.  The  government  established  fullers' 
mills,  dyeing  establishments,  presses,  and  wool  magazines.  To  en- 
courage certain  classes  of  foreign  artisans  to  marry,  privileges  were 
granted  them  for  three  years  after  marriage,  —  among  others,  full  exemp- 
tion from  taxes  or  exceptionally  low  taxes  and  freedom  from  military 
service.  Several  times,  as  in  1718  and  1721,  lists  of  tradesmen  and 
artisans  who  had  failed  in  different  cities  or  had  quit  business  were 
published,  so  that  the  vacancies  might  attract  attention  and  call  in 
others  to  take  their  places. 

Frederick  the  Great  (1740-1786)  continued  his  father's  policy. 
He  granted  religious  and  intellectual  toleration,  and  administered 
justice  with  impartiality,  not  merely  for  the  sake  of  these  good  things 
themselves,  but  also  to  increase  population  by  making  Prussia  the  goal 
of  emigrants  fleeing  from  persecution.  His  efforts  brought  at  least 
30,000  immigrants  into  Silesia  alone. 

Important  industrial  activity  was  the  result  of  this  application  of 
the  principles  of  the  Mercantilists.  Schmoller  enumerates  the  follow- 
ing industries  which  owe  their  origin  to  the  policy  of  Frederick  the 
Great :  the  mines  in  Silesia ;  an  iron  manufactory  in  Eberswalde 
(Neustadt-Eberswalde  until  1876) ;  the  Berlin  iron  foundry,  in  which 
the  entire  Berlin  industry  in  manufacturing  machines  had  its  origin ; 
the  manufactory  of  silk  in  Crefold ;  the  weaving  industry  in  Elberfeld 
and  Barmen ;  and  the  linen  industry  in  Billefeld.  Dutch  bleaching 
establishments  were  founded. 

A  court  was  established  which  exercised  jurisdiction  over  matters 
of  commerce  and  bleaching ;  and  to  crown  the  whole,  state  diplomacy 
was  used  to  assist  the  manufacturers  in  selling  their  products.  Spin- 


112  ECONOMIC  THOUGHT 

ning  and  weaving  were  controlled  by  minute  regulations.  It  was 
forbidden  to  export  yarn.  Spinning  was  encouraged  in  every  way ; 
the  soldiers  were  ordered  to  spin;  the  spinners  of  cotton  were  paid 
annual  premiums,  and  received  privileges  such  as  exemption  from 
taxation.  Edicts  were  issued  and  regulations  framed  for  the  purpose 
of  assisting  artificially  the  small  tradesmen  to  obtain  credit  and  the 
means  of  procuring  raw  material. 


CHAPTER    VIII 
EARLIER    GERMAN    MERCANTILISTS  AND    KAMERALISTS  * 

Teutschland  hat  zu  seinem  schaden, 

O  der  grossen  raserey ! 
Fremde  kauf-leut  eingeladen, 

Das  es  ja  bald  geldarm  sey. 
Fremde  waaren,  welche  leyder ! 
Bringen  nichts  als  fremde  kleider, 

Machen  unser  teutsche  welt 

Reich  an  hoffart,  arm  an  geld. 

VON  HORNIG. 

1.  Resume  of  the  Nature,  Scope,  and  Development  of 
Kameralism.  —  For  some  three  hundred  years  or  more  the 
economic  thought  of  the  German  states  and  Austria  was  largely 
embedded  in  that  body  of  learning  known  as  Kameralism  or 
Kameralwissenschaft,  This  was  the  German  Mercantilism,  a 
Mercantilism  which  deserves  separate  study  because  of  its 
peculiar  problems,  its  relatively  full  and  consistent  formulation, 
and  its  close  relation  to  more  recent  German  Economics. 

In  the  Middle  Ages  the  word  Camera  (German  Rammer)  de- 
signated the  place  in  which  the  royal  income  was  stored.  By 
the  Prankish  kings  the  royal  treasure  chamber  was  called 
Kammer,  and  the  term  soon  came  to  apply  to  the  royal  property. 
Thus  Kameral  affairs  concerned  the  economy  of  the  prince, 

1  For  a  more  complete  statement  of  Kameralism,  see  Small,  The  Camer- 
alists;  Chicago,  1909.  The  present  chapter  was  prepared  some  months 
before  the  appearance  of  Professor  Small's  book,  and,  its  conclusions  having 
thus  been  independent,  the  substantial  unanimity  of  the  two  is  of  interest. 
The  writer  has  had  access  to  a  copy  of  Hornig's  Oesterreich  iiber  alles,  which 
important  work  Dr.  Small  unfortunately  could  not  obtain.  The  writer  would, 
perhaps,  lay  more  emphasis  on  the  economic  element  in  Kameralism  than 
does  Professor  Small,  —  while  he  realizes  the  large  proportion  of  politics 
and  technics  embraced. 

I  113 


ECONOMIC  THOUGHT 

and  Kameralism  was  the  art  which  maintained,  increased, 
and  administered  the  royal  income.  After  the  erection  of  the 
Hofkammer  by  the  Emperor  Maximilian,  —  at  Innsbruck  and 
at  Vienna  (1493  and  1501),  —  a  knowledge  of  the  principles 
and  duties  involved  in  its  administration  became  necessary, 
and  chairs  for  instruction  in  such  knowledge  were  later  founded 
in  various  universities. 

At  the  outset,  Kameralism  was  a  combination  of  ideas,  politi- 
cal, juristic,  technical,  and  economic ;  but  toward  the  close  of 
the  Middle  Ages  it  became  largely  separated  from  jurisprudence, 
while  it  was  extended  to  include,  besides  the  original  idea  of  do- 
mainal and  regalian  administration,1  broader  matters  of  economic 
policy.  Then,  during  the  eighteenth  century,  technical  subjects 
were  more  and  more  dealt  with,  until  in  the  early  nineteenth  cen- 
tury there  was  a  reaction,  and  economics  was  severed  from  tech- 
nics. This  was,  no  doubt,  partly  effected  by  the  evolution  of 
political  economy  in  France  and  England.  Schmalz,  writing  in 
1819  (Encyclopedia  of  Kameralistic  Sciences),  made  Kameralism 
include  all  matters  pertaining  to  the  property  and  income  of  the 
people,  their  acquirement  and  increase,  and  taxation.  Two 
distinct  branches  were  technology  and  political  economy.  And 
Rau  (  Ueber  die  Kameralwissenschaft,  1825)  distinguished  private 
and  technical  economy  from  the  public  and  political. 

Throughout  its  entire  development  Finance  figured  promi- 
nently in  Kameralistic  thought. 

To  understand  this  thought  one  must  remember  that  the  great 
stimulus  to  the  thinking  of  the  early  Kameralists  lay  in  the  rela- 
tively backward  industrial  condition  of  the  German  states. 
From  the  reign  of  Charles  V  to  the  close  of  the  Thirty  Years' 
War,  Germany  was  split  up  into  a  political  chaos  of  struggling 
princely  and  burgher  economies.  In  vain  (1522-1523)  was  the 
project  of  a  national  tariff  wall  raised ;  and  Copernicus  proposed 
a  uniform  currency  to  no  avail.  The  political  struggle  concern- 
ing coinage  ("  Der  Miinzpolitische  Streit  ")  of  1530  was  typical. 

1  Domains  included  royal  estates,  crown  lands,  etc.,  regarded  as  sources 
of  revenue  for  the  rulers.  Regalia  included  many  rights  and  prerogatives, 
for  which  see  below,  p.  126. 


KAMERALISM  115 

During  the  continuous  warfare  prior  to  the  peace  of  West- 
phalia (1648)  cities  and  country  districts  were  depopulated,  while 
heavy  loads  of  debt  were  accumulated  by  sovereigns.  Torn  by 
internal  dissension,  overrun  by  Turk  and  Frenchman,  outstripped 
in  trade  by  the  vigorous  activity  of  Holland,  France,  and  Eng- 
land, there  was  need  of  action.  The  need  of  remedies  was 
especially  felt  after  the  Thirty  Years'  War. 

Kameralism  became  a  study  or  discipline  for  training  officials, 
largely  for  the  work  of  remedying  the  economic  evils  which 
afflicted  the  German  states  in  the  sixteenth  and  seventeenth 
centuries. 

In  this  situation,  coupled  with  an  undeveloped  system  of  tax- 
ation, lay  the  roots  of  the  German  Mercantilism. 

Beginning  about  the  middle  of  the  sixteenth  century  the  rise 
of  ideas  characteristic  of  German  Mercantilism  or  Kameralism 
may  be  traced  in  the  thought  of  Luther  and  of  Ossa  (1506-1556). 
But  George  Obrecht,  who  was  made  professor  of  law  at  Strass- 
burg  in  1575,  appears  to  be  the  first  real  Kameralist,  with  Besold 
—  also  a  law  professor  —  following.  Bornitz  and  Klock  (1583- 
1655)  came  shortly  after,  and  are  more  important.  These 
writers  generally  emphasized  the  importance  of  money  and  a 
dense  population,  and  placed  great  confidence  in  government 
regulation;  while  differing  on  such  points  as  the  advisability 
of  depending  on  domainal  revenue  to  support  the  government, 
the  nature  and  scope  of  regalian  rights,  and  a  reduction  of 
the  legal  interest  rate.  Chapters  on  such  technological  sub- 
jects as  fishing,  agriculture,  the  silk  industry,  etc.,  were  often 
presented. 

Better  known  and  more  influential  than  any  of  the  preceding 
was  Seckendorf  (1626-1692),  the  author  of  Der  Teutsche  Fiir- 
stenstaat  (1655).  He  may  almost  be  called  the  father  of  Kamer- 
alism. Like  his  fellows,  he  favored  a  dense  population  and  re- 
striction of  exports;  but  he  opposed  gild  monopolies  and  was 
more  moderate  in  his  views  on  government  restriction.  His 
tendency  to  separate  economic  considerations  from  those  of  a 
political  or  merely  fiscal  and  administrative  character  is  note- 
worthy. 


Il6  ECONOMIC  THOUGHT 

To  be  associated  with  Seckendorf  are  Bechers  (1635-1682), 
Hornig  (or  Hornigk),  and  Schroeder  (1640-1688) ;  while  with 
Gasser,  Danes,  Dithmar,  Zincke  (1692-1768)  and  Justi  (d. 
1771),  Kameralism  became  a  university  study  and  was  more 
systematically  developed. 

2.  The  Economic  Thought  of  Some  Typical  Kameralists. — 
(a)  Beckers1  ''Political  Discourse":  1667, —  In  the  fore  part 
of  his  Political  Discourse  l  (1667)  Dr.  Johann  Joachim  Bechers 
gives  us  a  statement  of  the  rules  which  should  regulate  the 
various  orders  of  society  in  Mainz,  —  the  upper  classes  as 
well  as  merchants,  artificers,  the  poor,  Jews,  and  beggars.  The 
quality  and  price  of  goods  were  to  be  regulated,  forestalling  pro- 
hibited, and,  in  general,  the  late-medieval  market  and  handicraft 
regulations  enforced.  The  authority  of  the  gilds,  however, 
must  be  decreased,  and  if  a  workman  were  skillful,  he  might 
work  at  his  craft  whether  fulfilling  gild  requirements  or  not 
(pp.  71-83).  He  recommends  that  the  three  productive 
classes,  merchants,  handicraftsmen,  and  peasants,  should  be 
guided  by  one  head  official  to  the  end  that  they  might  cooperate, 
and  so  cause  the  community  to  grow  by  advancing  its  business. 
"  But,  because  .  .  .  this  consists  in  negotiation  and  sale,  it  is 
easily  to  be  understood  that  of  everything  which  hinders  it  or 
the  business  and  population  which  arise  from  it,  and  on  that 
account  weakens  the  community  and  its  business  and  all  the 
utilities  which  result,  nothing  is  so  obstructive  as  to  burden  mer- 
chandise and  merchants  with  high  tolls  and  imposts ;  for  thereby 
will  the  tradesman  be  impelled  to  furnish  his  wares  dearly  in  order 
to  cover  such  imposts  "  (p.  99).  As  a  result,  either  foreigners 
would  get  the  trade,  or  the  consumption  would  be  decreased 
and  trade  weakened.  So  with  handicrafts :  heavy  taxes  on  the 
means  of  subsistence  make  artisans  charge  more  for  their  work, 
and  purchases  are  made  abroad,  while  these  results  cause  the 
agriculturist  to  lose  his  market. 

1  Polilischer  Discurs,  von  den  eigentlichen  Ursachen  des  Auf-  und  Abnehmens 
der  Stadt,  Lander,  und  Republicken,  in  Specie,  wie  ein  Land  volkreich  und 
nahrhaft  zu  machen.  3d  ed.,  Frankfurt,  1688;  ist  ed.,  1667;  6th  ed., 
1 759- 


KAMERALISM  117 

Consumption  or  sale  1  is  most  necessary  to  hold  the  three 
groups  together  and  bring  prosperity.  When  the  market  is  good 
the  merchant  sells,  the  manufacturer  works  day  and  night  mak- 
ing things  for  the  merchant  to  dispose  of,  and  the  agricultural 
worker  produces  raw  materials.  But  the  merchant  is  the  key- 
stone. Upon  him  and  his  sales  rest  the  nourishment  and  increase 
of  the  people. 

"  Those  are  proper  traders  who  through  their  stock  bring  it  to 
pass  that  raw  stuffs  remain  in  the  land  and  are  worked  up  by 
the  subjects  thereof,  .  .  .  that  instead  of  foreign  manufactures 
coming  into  the  land  and  money  going  out  to  pay  for  them,  not 
only  does  such  money  remain  in  the  land,  but  the  exports  draw 
in  trade  (or  wealth) :  These,  say  I,  are  useful  members  of  the 
community"  (103). 

Markets  are  of  two  kinds :  domestic  and  foreign.  The  former 
is  a  privatum  privilegium,  is  certain,  and  to  be  kept  for  home 
traders.  The  foreign  market,  if  the  foreigners  are  clever,  is  not 
to  be  hoped  for  as  a  privilegium,  and  one  can  draw  away  the 
foreigners'  money  only  by  the  cheapness  and  goodness  of  one's 
wares.  To  this  end,  cheap  living  through  low  import  duties  on 
food,  etc.,  is  desirable ;  also,  encouragement  to  good  artificers, 
and  good  masters  and  materials. 

Bechers  makes  much  of  three  great  evils:  monopolium,poly- 
polium,  and  propolium.  These  tend  to  destroy  the  state.  The 
first,  or  monopoly,  destroys  population  by  restricting  access  to 
trade,  as  do  the  gilds  with  their  many  requirements.  On  the 
other  hand,  Holland,  by  abolishing  all  restrictions,  has  brought 
on  a  "  polypoly  "  which  exists  when  there  are  more  peasants  than 
land,  more  handicraftsmen  than  work,  more  merchants  than 
market.  This  destroys  subsistence.  The  idea  of  a  "  propoly  " 
seems  less  distinct,  Bechers  himself  stating  that  it  tends  to  mo- 
nopoly. The  East  India  Company  was  a  "  propoly."  To  fore- 
stall or  to  take  advantage  of  a  cheap  year  to  buy  up  for  the  pur- 
pose of  selling  dear  at  a  later  time  also  fell  under  this  head  and 
tended  to  destroy  the  community. 

1  Consumption,  debit,  oder  Verschleiss. 


Il8  ECONOMIC  THOUGHT 

To  Bechers  the  institutions  of  greatest  advantage  to  a  state 
were  a  well-established  currency,  a  free  market  house  (Kauf- 
haus),  a  well-manned  workhouse  (Werkhaus),  and  a  rich  bank 
(267).  The  first  three  would  maintain  the  supply  of  money; 
the  last  would  bring  in  more  from  abroad. 

He  seems  to  have  had  some  understanding  of  the  principle 
now  called  Gresham's  Law,  and  discusses  the  measures  tried  by 
Sweden,  Holland,  and  England  for  retaining  their  good  coin. 

As  no  ware  is  dearer  or  more  necessary  to  a  country,  he  lays 
it  down  as  a  general  rule  that  by  every  means  money  should  be 
kept  at  home,  and  to  this  end  advocates  a  five  per  cent  impost 
on  specie  exports.  Coins  should  be  of  pure  metal,  but  might  be 
advantageously  decreased  in  weight.  By  the  establishment  of 
exchange  banks  on  the  borders  of  the  country,  the  flow  of  prec- 
ious metals  in  and  out  of  the  country  might  be  controlled,  — 
only  domestic  coins  to  pass  current  within. 

Bechers  wrote  much  concerning  foreign  commerce,  and  fa- 
vored developing  it  through  the  agency  of  regulated  companies. 

On  the  whole,  though  he  did  not  overlook  the  importance  of 
agriculture,  nor  desire  an  overdense  population,  he  was  de- 
cidedly a  Mercantilist.1 

(b)  Hornig;  Rules  for  making  a  nation  self-sufficient:  1684.  — 
Oesterreich  iiber  alles,  wann  es  nur  will  *  is  the  title  of  von  Hor- 
nig's  (or  Hornigk)  book.  It  was  one  of  the  best  known  of  the 
Kameralistic  writings,  though  now  quite  rare.  The  title  strikes 
its  keynote,  —  Austria  above  all  if  only  she  will.  By  systemati- 
cally exploiting  her  resources,  developing  thrift,  excluding  cer- 
tain foreign  manufactures,  etc.,  she  might  surpass  her  neighbors 
in  power  and  wealth. 

Hornig  makes  "  the  might  and  excellence  of  the  land  consist 
in  its  overplus  of  gold  and  silver  and  all  other  things  requisite 
or  convenient  for  its  subsistence,  and  indeed  all  such  as,  in  so  far 
as  is  possible,  come  from  its  own  resources,  —  and  at  the  same 
time  their  proper  (rechtmassig)  care,  use,  and  application  "  (p.  33). 

1  Bechers  seems  to  have  given  up  some  of  his  Mercantilist  doctrines  and 
to  have  displayed  communistic  leanings. 
1  Ed.  of  1707  quoted;  ist  ed.  in  1684. 


KAMERALISM  119 

This  passage  brings  out  the  chief  point  in  Hornig's  thought : 
self-sufficiency.  He  accordingly  proceeds  to  examine  Austria's 
balance  (bilancia),  considering  first  her  deficit,  so  to  say, 
in  gold,  silver,  and  other  things,  and  then  her  surplus ;  conclud- 
ing that  her  great  natural  resources  in  salt,  bread,  fish,  wine,  etc., 
made  it  possible  for  her  to  increase  production  and  secure  a  favor- 
able balance  (chaps,  xi,  xii,  xiii). 

His  idea  of  wealth  and  of  favorable  balance  is  not  a  narrow 
one.  A  land  having  only  gold  and  silver  is  indeed  rich  (reich), 
but  is  far  from  the  goal  of  self-sufficiency;  for  its  people  can 
neither  eat  nor  wear  those  metals  (27-28).  On  the  other  hand, 
one  having  all  but  gold  and  silver,  while  it  could  stand  alone 
longer,  is  also  dependent ;  for,  we  are  told,  gold  and  silver  seem 
indispensable  to  most  men,  and  such  a  land  would  depend  upon 
the  foreigner's  goodwill  for  the  exchange  of  its  goods  for  gold  and 
silver. 

In  making  a  common  comparison  between  the  bases  for  the 
industrial  success  of  Holland  and  England,  Hornig  uses  a  strik- 
ing figure :  Holland's  gold  magnet  is  stronger  in  attracting,  Eng- 
land's in  retaining,  the  precious  metals  (30). 

Thus  the  question  with  Hornig  is  always  one  of  foreign  com- 
parison. He  specifically  states  that  power  and  wealth  have 
become  relative  terms,  depending  not  on  the  absolute  quantities 
of  power  and  wealth  possessed,  but  on  their  relations  to  those 
of  neighboring  lands. " 

The  analysis  of  economic  categories  is  interesting.  All  mat- 
ters useful  for  human  subsistence  are  of  two  sorts :  first  there  is 
the  thing  itself ;  and  secondly  there  is  the  proper  (or  legal  ?)  care 
and  application,  especially  suitable  arrangements  for  domestic 
and  foreign  industry  and  trade  (27,  31).  The  former  depends 
upon  nature  alone ;  the  latter  partly  on  nature,  partly  on  human 
wishes.  In  the  last  analysis  all  the  things  themselves  fall  into 
two  classes:  (i)  gold  and  silver,  (2)  all  other  things  for  nourish- 
ment, clothes,  shelter,  etc.  Gold  and  silver  are  equal  to  all  other 
things  in  value  and  use  (Werth  und  Nutzen),  and  are  of  quite  an- 
other sort  on  account  of  their  "  civil  use." 

But  to  return  to  Hornig's  thesis.     He  lays  down  nine  "  fun- 


120  ECONOMIC  THOUGHT 

damental  rules  for  a  general  national-economics."  These  rules 
were  quoted  by  other  writers,  and  exerted  much  influence.  They 
are  fairly  typical  of  the  dominant  mixture  of  Kameralism  proper 
and  Mercantilism. 

I.  The  earth  and  all  on  and  in  it  should  be  examined  most  ac- 
curately to  learn  how  everything  may  be  made  most  useful  to 
the  nation ;  and  in  all  things  which  concern  gold  and  silver  no 
pains  or  costs  should  be  spared. 

II.  "  All  the  goods  which  occur  in  a  country  and  which  are  not 
used  in  their  raw  state  should  be  worked  up  in  that  country  as 
far  as  possible." 

III.  For  the  execution  of  these  rules  people  should  produce 
raw  materials  as  well  as  work  them  up.     Thus  it  is  important  to 
regard  population,  and  to  keep  men  from  foolish  occupations ; 
and  by  all  devices  to  instruct  and  encourage  artisans  and  handi- 
craftsmen, taking  instructors  from  abroad  if  necessary. 

IV.  Gold  and  silver  once  in  the  country  should  if  possible  be 
kept  there ;   but  they  must  not  be  stored  up,  but  kept  in  con- 
stant circulation.     Nor  must  they  be  invested  in  unprofitable 
works. 

V.  The  inhabitants  of  a  state  should  seek,  in  so  far  as  is 
possible,  to  satisfy  themselves  with  domestic  goods  and  forego 
foreign  products. 

VI.  "  Should  the  importation  of  foreign  goods  be  necessary, 
they  should  not  be  paid  for  with  gold  or  silver,  but  with  exchange 
of  domestic  goods." 

VII.  "  Such  foreign  goods  must  be  imported  in  the  raw 
state  and  be  worked  up  in  the  country." 

VIII.  In  all  industry  it  must  be  considered  how  surplus  goods 
can  be  exported  in  finished  form  for  gold  and  silver,  and  with  this 
object  try  to  drive  trade  even  to  the  ends  of  the  earth. 

DC  It  is  not  as  a  rule  permissible  that  goods  of  which  the 
state  has  a  surplus  be  imported,  even  if  possible  to  buy  the 
foreign  goods  for  less  than  the  domestic. 

Horm'g  thought  the  exclusion  of  imports  easy  and  simple 
(125).  By  this  means  a  market  would  be  guaranteed  to  the 
domestic  producer :  "  When  money  no  longer  goes  to  foreigners 


KAMERALISM  121 

at  least  ten  millions  annually  will  remain  in  the  land  and  turn 
to  business  capital  (Verlagscapitalien) ;  and  the  assurance  of 
the  market,  with  the  accompanying  certainty  of  profits,  will 
encourage  capitalists  to  loose  their  cash.  The  foreign  artificers 
will  be  compelled  through  lack  of  work  and  bread  to  come  to 
the  father-land  to  seek  both." 

The  restrictions  of  the  gilds  received  considerable  criticism, 
but  he  does  justice  to  the  good  order  enforced  by  them. 

Von  Hornig's  contemporary,  von  Schroeder,  entered  public 
service  in  Austria  in  1673  to  conduct  a  factory  (Manufakturhaus) 
according  to  Bechers'  plans,  and  was  later  court  financial  coun- 
cilor in  Hungary.  He  is  notable  for  his  attack  upon  gild 
monopoly,  and  his  advocacy  of  tolls,  public  loans,  and  the 
balance-of- trade  idea.1 

(c)  Daries'  First  Principles:  1756.  —  Passing  over  the  several 
writers  mentioned  above,  the  work  of  Joachim  Georg  Daries 
must  be  considered.  His  First  Principles  of  Kameral  Sciences, 
published  in  Jena,  1756,  about  ninety  years  later  than  Bechers' 
book.  Shortly  before  this  time  Frederick  William  I  had  be- 
come interested  in  this  subject,  and  in  1727  had  founded  chairs 
of  Economic  and  Kameralistic  Sciences  at  Halle  and  Frankfurt- 
on-the-Oder.2  This  had  given  an  impulse  to  further  study,  in 
which  it  is  noteworthy  that  technology  was  emphasized. 

In  his  preface  Daries  expresses  indebtedness  to  Schroeder  and 
Seckendorf,  and  refers  to  Dithmar,  the  latter  being  the  incum- 
bent of  the  chair  established  by  Frederick  William  in  Frank- 
furt. He  proceeds  to  recite  the  objections  then  being  made  to 
the  study  of  Kameralism :  it  was  said  to  concern  things  which 

1  Notwendigcr  Unlerricht  vom  Goldmachen  (1648) ;  De  M inistrissimo  (1663) ; 
Fiirstliche  Sch&z-  u.  Rentkammer  (1686) ;  Disquisitio  politico,  vom  absoluten 
Fursten  (1713).     Schroeder  spent  considerable  time  in  England,  and  was 
much  influenced  by  English  thought.     On  Schroeder  see  Erbik,  Wilhelm 
von  Schroder.     (A  "  Separate  "  from  the  reports  of  the  Royal  Academy 
of  Sciences  in  Vienna.    Vienna,  1910.) 

2  These  are  often  said  to  be  the  first  professorships  of  political  economy, 
but  if  they  are  so  to  be  called  the  term  "  political  economy  "  must  not  be 
given  the  full  meaning  it  now  possesses.     Gasser  was  the  incumbent  of  the 
chair  at  Halle. 


122  ECONOMIC  THOUGHT 

experience  alone  could  teach,  its  subject  matter  was  too  complex 
for  generalization,  and  some  thought  that  only  burghers  or 
peasants  should  busy  themselves  about  such  matters. 

After  disposing  of  these  prejudices,  he  proceeds  to  consider 
the  sources  of  annual  income,  which  are  of  two  sorts :  one  fixed 
and  calculable,  the  other  the  result  of  chance  (p.  n).  The 
former  alone  can  be  dealt  with  scientifically.  It  consists  of 
(i)  aptness  in  application  of  human  powers,  (2)  acquired  goods 
which  can  be  of  annual  use.  These  goods  form  what  he  calls 
a  Fund  (Fond)  or  Capital  ( !).  They  make  a  surer  source  of 
income  than  skill. 

His  definition  of  the  term  "  Capital "  is  suggestive :  "  We  take 
it  in  the  common  sense  to  designate  that  earned  property  which 
we  accept  as  enduring  so  that  it  proves  effective  annually  for 
our  uses  "  (p.  15). 

Now,  a  prince  may  be  regarded  either  as  a  man,  or  as  a  royal 
personage  or  sovereign  receiving  a  royal  income.  From  the 
latter  viewpoint,  "  the  capital  or  fund  of  the  princely  income 
is  the  wealth  of  the  State  and  the  subjects."  But  to  obtain 
this  income,  the  capital  of  the  subjects  must  not  be  encroached 
upon.  It  is  constantly  stated  that  the  well-being  of  sovereign 
and  subject  are  inseparable. 

Daries'  division  of  Kameralism  is,  interesting.  First  comes 
Agricultural  or  Rural  Economy,  dealing  with  the  forces  of 
nature  and  their  adaptation.  Here  tillage  and  cattle-raising 
are  the  chief  subjects.  Next  he  places  Urban  Economy,  study- 
ing the  ways  in  which  art  aids  nature  in  workshops  and  factories. 
Then  comes  Police  Science  or  Polity  (Policei).  Here  such 
matters  as  population,  education,  care  of  the  poor,  and  stimu- 
lation of  industry  are  treated,  —  in  short,  all  arrangements  of 
the  state  for  increasing  the  annual  income  of  the  citizens.  Fi- 
nally there  is  Royal  Economy,  which  concerns  the  income  of  the 
prince  and  is  Kameralism  proper. 

Polity  or  police  power  (Policei}  is  clearly  distinguished  from 
religion  and  law.  It  deals  with  wealth.  In  so  far  as  justice  and 
religion  aim  at  preventing  poverty  or  increasing  wealth,  they 
belong  with  polity.  The  laws  of  polity  must  not  contradict 


KAMERALISM  123 

moral  laws ;  they  must  only  determine  how  morally-permissible 
things  can  be  directed  to  increase  the  wealth  of  the  state.  By 
nature,  men  are  free  to  do  anything  in  accord  with  reason; 
but  polity  may  restrict  and  limit  this  liberty. 

"  A  regular  polity  makes  good,  and  consequently  rich,  subjects, 
good  and  rich  subjects  make  rich  and  powerful  Princes"  (394). 

In  his  chapter  on  town  economy  Daries  makes  an  analysis  of 
costs  which  is  most  interesting.  The  producer  should  investigate 
these  carefully  and  see  that  allowance  is  made  for  (i)  raw 
materials,  (2)  interest  on  the  value  of  such  materials  till  the 
finished  good  is  sold,  (3)  the  price  of  tools,  and  (4)  their  interest 
and  depreciation,  (5)  labor,  (6)  interest  on  wages,  (7)  interest  on 
buildings  used,  and  (8)  expenses  of  marketing,  accounting,  etc. 
When  these  items  are  established  as  a  capital  and  the  price 
received  for  the  product  replaces  this  capital  with  interest,  the 
business  is  carried  on  with  profit  (233). 

On  the  whole,  he  subscribes  to  the  doctrines  of  Hornig,  but  is 
much  more  liberal.  He  does  not  believe  that  gold  and  silver 
should  never  be  exported,  his  rule  being  the  following :  "  The 
export  of  gold  and  silver  is  only  to  be  obstructed  to  the  extent 
that  it  does  not  work  to  the  good  of  the  state.  It  is,  on  the 
contrary,  an  evidence  of  political  shrewdness  to  give  foreigners 
gold  and  silver  if  it  is  possible  by  this  to  further  the  well-being 
of  the  State"  (531).  And  he  opposes  restriction  of  trade;  for 
it  would  be  better  to  seek  how  to  direct  the  production  of  the 
nation  into  the  most  profitable  industries.  As  to  the  desirability 
of  always  exchanging  goods  for  precious  metals,  he  remarks  that 
circumstances  exist  under  which  the  mere  exchange  of  goods 
for  goods  is  more  advantageous.  One  country  has  especial 
advantage  for  one  industry,  another  for  a  different  one.  By 
exchange  of  their  respective  products  both  profit  (536). 

On  the  point  of  population  he  was  an  orthodox  Mercantilist. 
"  All  industries  which  provide  means  for  nourishing  more  subjects 
in  a  country  are  useful  to  it."  A  dense  population  is  all  but  made 
the  source  of  the  wealth  of  the  state.  It  is  not  to  be  feared. 
//  order  prevails,  the  food  supply  and  trade  and  the  income  of 
the  prince  are  increased ;  and  it  is  important  for  defense. 


124  ECONOMIC  THOUGHT 

The  foregoing  is  all  drawn  from  Danes'  chapters  on  Agricul- 
tural, Town,  and  Police  Economics,  the  greater  part  of  which 
is  given  to  semi-technological  topics,  such  as  beer-brewing, 
linen  manufactures,  tillage,  and  cattle-raising. 

He  concludes  with  a  book  on  the  real  or  proper  Kameral 
affairs,  in  which  he  discusses  the  income  and  expenditures  of  the 
prince,  laying  down  rules  for  administering  them.  Chapters 
on  Domains  and  Regalia,  or  regal  rights,  are  included. 

3.  Justi's  Political  Economy.  —  The  work  of  Justi,  entitled 
Political  Economy,  or  A  Systematic  Treatise  on  all  Economic 
and  Kameral  Sciences1  (1755),  maybe  regarded  as  the  climax 
of  pure  Kameralism.  In  it  the  great  mass  of  Kameralistic 
doctrines  was  summed  up  and  organized.  There  is  little  that 
is  new,  however,  save  the  analysis  and  classifications. 

In  the  first  place  some  further  idea  may  be  gained  from  Justi 
concerning  the  classification  of  the  subject  matter.  Economic 
science,  he  states,  deals  with  the  maintenance  and  increase  of 
thi  means  of  private  persons;  Kameral  science  does  the  same 
for  governments.  But  Kameralism  proper  is  administrative 
in  nature;  for  the  business  of  the  ruler  is  twofold,  embracing 
besides  polity  and  economy  —  which  maintain  or  increase  the 
means  of  the  state  —  Kameralism,  which  seeks  to  administer 
these  means  so  as  to  promote  the  general  well  being.  The 
latter,  in  a  word,  deals  with  the  prince's  revenue,  its  disburse- 
ment, and  the  organization  and  administration  of  his  political 
business.  One  great  branch  of  study  is  Oekonomie,  which  might 
be  interpreted  as  administrative  economics.  Under  it  fall 
(i)  Management  (or  private  economics),  (2)  Police,  dealing  with 
the  conduct  and  sustenance  of  the  people,  and  (3)  Kameralism 
and  finance,  which  take  up  the  methods  and  materials  of  com- 
merce, and  measures  for  promoting  it. 

The  three  great  essentials  to  a  flourishing  state  are  freedom, 
safety  of  property  rights,  and  a  prosperous  industry.  For  in- 
creasing the  wealth  of  a  state,  these  means  exist:  increasing 
population,  foreign  trade,  and  mining.  Justi  says  that  with 

1  Staatswirthschaft,  oder  systematische  Abhandlung  oiler  Oekonomischen 
und  Cameral-Wissenschaften,  die  zur  Regierung  eines  Landes  erfordert  warden. 


KAMERALISM  125 

good  government  and  prosperous  industry  no  limit  should  be 
placed  to  the  increase  of  population,  a  statement  which,  in  its 
assumption,  begs  the  question  as  later  raised  by  Malthus. 
Though  he  lays  great  emphasis  upon  commerce  and  his  balance 
of  trade  idea  is  pretty  narrowly  Mercantilistic,  he  does  not 
overlook  the  importance  of  agriculture.1  This  was,  in  part, 
however,  with  the  idea  of  procuring  cheap  food  and  low  wages 
for  laborers. 

Justi  is  extremely  inconsistent  in  dealing  with  the  nature  and 
increase  of  wealth,  some  juster  ideas  being  mingled  with  the  old 
errors.2  Thus,  at  one  point,  he  says  that  a  land  might  be  rich 
even  if  it  had  no  gold  and  silver,  and  defines  wealth  as  the  supply 
of  the  comforts  and  necessaries  of  life.  But  again  we  are  told 
that  gold  and  silver  are  necessary  for  exchange,  and  so  a  land  is 
not  rich  without  them.  And,  finally,  he  steps  over  into  state- 
ments that  wealth  equals  the  supply  of  money. 

It  is  clearly  pointed  out  that  the  interests  of  the  merchant 
are  to  be  distinguished  from  those  of  the  government,  their  gain 
not  always  coinciding  with  the  public  welfare,  though  it  may  do 
so. 

One  of  the  most  notable  points  in  Justi's  book  is  his  body  of 
rules  for  levying  taxes.  Briefly  they  are  as  follows : 3  — 

(1)  Taxes  should  be  so  levied  that  they  will  be  paid  willingly. 

(2)  They  must  not  restrict  industry  and  commerce  by  inter- 
fering with  freedom  of  conduct,  credit,  etc. 

(3)  They  must  be  levied  with  relative  equality. 

(4)  They  should  be  sure  and  true,  falling  upon  such  objects 
as  enable  a  certain  and  honest  collection. 

(5)  They  should  be  levied  on  such  objects  as  will  permit  the 
least  number  of  collectors'  offices,  and  officials. 

(6)  They  should  be  so  levied  as  to  amount  and  time  of  pay- 
ment as  to  be  most  convenient  for  the  subject. 

Justi,  in  the  third  rule,  considers  both  the  benefit  received 

1  It  is  interesting  to  note  that  he  refers  to  Vauban  in  another  connection 
Vauban,  a  French  writer,  thought  agricultural  labor  most  important.  See 
below,  p.  136. 

*  Staatswirthschaft,  I,  pp.  152-155  (2d  ed.).  *  Ibid.,  II,  309  ff. 


126  ECONOMIC  THOUGHT 

from  the  government  and  the  ability  of  the  subject  to  pay.  In 
this  classification  he  anticipates  to  no  small  degree  the  famous 
canons  of  taxation  laid  down  by  Adam  Smith.1 

4.  Regalian  Rights.  —  In  order  to  understand  the  foregoing 
references  to  regalian  and  domainal  rights,  and,  indeed,  a  con- 
siderable part  of  Kameralistic  writing,  it  is  essential  to  grasp 
the  significance  of  regalian  or  regal  rights  in  connection  with 
the  evolution  of  economic  thought.  To  the  Kameralists  such 
rights  meant  no  legal  theory,  nor  a  merely  political  struggle 
between  sovereign  and  pope  or  vassal,  but  the  source  of  revenue. 
The  regalian  question,  which  reached  its  height  in  Germany 
in  the  seventeenth  century,  owed  its  significance  largely  to  the 
backwardness  of  taxation  and  the  taxation  idea  at  a  time  when 
states  needed  more  revenue.  Dependence  on  the  income  from 
royal  domains  was  no  longer  possible.  Some  middle  source  of 
revenue  must  be  found.  Hence  there  was  a  tendency  to  expand 
fiscal  policies  by  extending  the  number  and  scope  of  royal 
privileges. 

Roscher  distinguishes  four  groups.2  First,  the  various  feudal 
aids  and  duties  were  exploited.  Thus  knight  service  might  be 
escaped  by  a  payment ;  large  amounts  were  demanded  when 
land  was  sold;  and  when  traveling  the  king  lived  upon  his 
people  through  rights  of  purveyance  and  preemption.  Secondly, 
there  was  a  group  analogous  to  domainal  rights.  For  example, 
all  property  without  an  owner  might  revert  to  the  king ;  buried 
treasure  and  the  property  of  deceased  aliens  were  his;  etc. 
Then  another  source  of  revenue  lay  in  the  political  activity  of 
the  sovereign :  he  shared  in  war  booty,  sold  offices  and  protec- 
tion, and  received  fines  and  confiscated  property.  Lastly,  the 
state  conducted  directly  or  indirectly  certain  industrial  enter- 
prises, especially  new  trades,  and  industries  in  new  lands.  So 
it  was  with  the  post,  lotteries,  mining  of  precious  metals,  and 
certain  branches  of  foreign  trade.  In  this  last  case,  and  in  the 

1  Below,  p.  178. 

1  Geschickte  der  National-Oekonomik  in  DeutscUand,  p.  159.  These  are  not 
of  fundamental  importance,  but  are  useful  as  giving  a  summary  idea  of  the 
scope  of  regalian  rights. 


KAMERALISM  127 

third,  too,  political  objects  may  also  have  been  in  mind.  Al- 
together as  many  as  four  hundred  regalian  rights  were  some- 
times distinguished.1 

Now  this  mass  of  sovereign  rights  was  rather  chaotic  and  ill- 
defined.  In  keeping  with  the  Kameralist's  confusion  of  politi- 
cal, financial,  and  general  economic  matters,  regalian  rights 
appear  to  have  been  regarded  as  sort  of  middle  ground  between 
domainal  revenue  on  the  one  hand,  and  taxation  proper  on  the 
other,  and  came  to  include  an  unanalyzed  mass  of  tolls,  duties, 
aids,  and  taxes  which  did  not  seem  to  them  to  fall  under  either 
of  the  other  heads. 

It  has  been  suggested  that  this  is  a  normal  stage  between  what 
from  a  fiscal  viewpoint  may  be  called  domainal  and  tax  econo- 
mies.2 On  the  political  side  this  stage  corresponds  to  a  transi- 
tion period  between  feudalism  and  absolutism,  its  later  phases 
being  characterized  by  an  extension  of  the  prerogatives  of  the 
crown  and  the  decay  of  the  old  nobility,  while  systems  of  taxa- 
tion authorized  by  class  or  mass  had  not  yet  been  established. 

It  remains  to  be  noted  that  some  of  the  later  Kameralists 
took  steps  toward  an  analysis  and  delimitation  of  regalian  rights. 
Justi  classified  them  under  four  heads,  as  concerning  highways, 
water,  forests,  and  sub-surface  wealth;  while  Sonnenfels  went 
further  and  cut  down  the  extent  of  these  rights  considered  as 
fiscal  devices  by  placing  mine,  salt,  and  tobacco  regalia  under 
taxation,  and  classing  others  as  aids  to  Polizei  or  police  power. 
Rau,  however,  clung  to  the  old  classification. 

This  tendency,  though  the  source  of  considerable  contention 

1  In  England  Blackstone  divided  regalian  rights  into  two  groups :  majora 
regalia,  which  embrace  the  prerogatives  that  concern  the  political  character, 
the  dignity,  and  regal  power  of  the  sovereign ;   and  minora  regalia,  which 
concern  the  regal  revenue.     He  tells  us  that  the  English   kings  had  been 
shorn  of  much  of  their  revenues,  having  granted  them  away  to  subjects; 
yet  he  distinguishes  eighteen  varieties,  such  as  the  revenue  from  bishoprics, 
rights  of  purveyance,  rights  of  royal  fish  (whale  and  sturgeon),  forfeiture 
and  escheat,  etc.    These  are  the  "proper  patrimony  of  the  crown,"  though 
English  kings  were  largely  dependent  upon  extraordinary  revenue.     (Black- 
stone's  Commentaries,  Bk.  I,  Chaps.  7  and  8.) 

2  Roscher,  Gcsch.  d.  Nat.  Oek.,  p.  158. 


128  ECONOMIC  THOUGHT 

in  its  details,  is  in  general  logically  necessary.  The  regalian 
rights  lost  their  significance  with  the  limitation  of  royal  pre- 
rogatives and  the  growth  of  taxation.  All  that  was  left  fell 
logically  either  under  taxation,  or  under  tolls  and  duties  imposed 
for  the  control  of  consumption  and  the  like. 

5.  Kameralism  and  Mercantilism ;  Summary.  —  Kameral- 
ism  might  be  defined  as  German  Mercantilism.1  Like  Mercantil- 
ism, it  is  difficult  to  define  comprehensively  as  a  body  of  thought. 
This  much  must  be  stressed :  it  was  more  than  English  Mer- 
cantilism. The  representatives  of  both  groups  made  much  of 
government  regulation,  placing  a  naive  confidence  in  the  effi- 
cacy of  laws.  Tariffs  and  taxes  figured  prominently.  Both 
regarded  the  precious  metals  as  the  most  desirable  form  of  wealth, 
emphasizing  their  distinctness.  Both  were  animated  by  inter- 
national rivalry,  and  both  preached  dense  population,  frugality, 
and  self-sufficiency.  But  there  the  main  points  of  similarity 
begin  to  cease. 

A  notable  difference  in  the  form  and  scope  of  the  writings 
which  contain  the  views  of  the  two  groups  strikes  one  at  a  glance. 
The  English  Mercantilists  were  pamphleteers,  writers  of  short 
tracts,  not  very  comprehensive.  The  German  writers  set  forth 
their  doctrines  in  bulky  volumes,  dealing  with  all  phases  of  their 
topic  as  they  conceived  it,  and  with  much  show  of  logical  sub- 
division and  arrangement.  They  were  professors  of  law,  finance 
councillors,  and  the  like. 

The  German  works,  too,  form  part  of  a  more  connected  body 
of  thought.  With  their  roots  in  medieval  treatises  and  Roman 
jurisprudence,2  the  fruit  of  more  modern  German  economics  is 
in  part  theirs;  for  Kameralism,  unlike  Mercantilism,  existed 
as  such  into  the  nineteenth  century. 

The  Kameralists,  with  a  few  exceptions,  were  relatively  less 
concerned  with  foreign  relations,  commerce,  and  the  balance  of 

1  Remembering  that  Mercantilism  must  not  be  too  narrowly  confined  to 
certain  ideas  concerning  balance  of  trade  and  estimation  of  money. 

2  Bornitz,  for  example,  constantly  cites  the  Corpus  Juris.     Seckendorff 's 
Der  teutsche  Furstenslaat  appears  to  be  the  first  book  (1655)  on  political 
economy  written  in  German,  the  other  Kameralists  using  Latin. 


KAMERALISM  I2Q 

trade  idea  than  their  more  maritime  neighbors  in  England  and 
France.  They  made  more  of  internal  or  domestic  industry,1 
and  to  this  end  incorporated  in  their  writings  books  or  chapters 
dealing  with  the  technics  of  agriculture,  grazing,  mines,  and 
forests,  and  the  various  branches  of  manufacture.  These  sub- 
jects received  little  attention  from  the  English  Mercantilists. 

This  last  difference  is  to  a  considerable  extent  the  expression 
of  different  origins  and  objects.  Kameralism  began  with  the 
desire  for  efficient  administration  of  the  domains  and  regalian 
rights  of  the  sovereign  ;  and  it  retained  the  stamp  of  its  beginning 
to  the  end.  Kameralism  embraced  many  things,  but  its  proper 
part  was  ever  the  maintenance,  increase,  and  expenditure  of  the 
prince's  income,  by  which  was  meant  the  revenue  of  the  state. 
As  in  the  case  of  English  Mercantilism,  the  interests  of  state 
and  individual  were  not  assumed  to  be  in  harmony.  The 
German  state,  however,  was  somewhat  different  from  the  English 
state  in  the  absolute  nature  of  its  prince's  rule,  so  that  politi- 
cally Kameralism  is  more  like  Colbertism  than  English  Mercan- 
tilism. 

Moreover,  the  wasting  and  depopulation  of  town  and  country 
caused  an  unusual  emphasis  to  be  placed  upon  population ;  while 
the  exhaustion  of  treasuries  meant  an  equal  attention  to  fiscal 
devices. 

There  is  some  difference  of  opinion  as  to  the  merits  of  the 
Kameralistic  ideas  about  population.  While  the  needs  of  their 
country  were  such  as  to  make  a  problem  different  from  that  which 
later  confronted  Malthus,  and  while  their  qualification  that  order 
and  good  government  must  prevail  should  be  remembered,  yet 
it  must  be  concluded  that  they  often  stated  the  benefits  to  be 
expected  from  an  increase  in  population  too  absolutely.  At 
points  there  seems  to  be  a  kind  of  optimism  in  their  thinking. 
They  were  prone  to  assume  that  the  other  factors  would  develop 
in  proportion.  Sometimes,  too,  population  was  thought  of  al- 
most as  an  end,  —  no\v  for  military  purposes,  row  ?s  an  economic 
benefit.  The  chief  criticism,  after  all,  is  that  they  did  not  go 

1  Even  of  Hornig,  Oncken  says,  "  One  sees  that  this  German  Mercan- 
tilism has  its  climax  not  in  foreign  trade  but  in  domestic." 
K 


130  ECONOMIC  THOUGHT 

far  enough  in  their  thought,  the  result  being  a  short-time  policy 
rather  than  a  general  theory.  Here,  as  elsewhere,  we  may 
judge  leniently,  but  remembering  that  this  is  done  not  so  much 
because  these  early  thinkers  had  the  truth  as  because  they  were 
early  thinkers,  and  so  our  standard  itself  may  be  modified.1 

The  importance  of  a  knowledge  of  Kameralism  to  an  under- 
standing of  German  economics  remains  to  be  observed.  With- 
out its  peculiar  background  of  Kameralwissenschaft  German 
theory  would  probably  have  been  other  than  it  is.  One  of  the 
most  obvious  effects  of  Kameralism  appears  in  the  division  of 
the  science  into  general  and  special  economics,  and  finance; 
and  in  the  emphasis  on  the  technical  and  financial  aspects. 
Again,  the  early  prevalence  of  a  distinction  between  public 
and  private  interests,  and  the  general  recognition  of  the  im- 
portance of  legal  advantages,  special  privileges,  business  arrange- 
ments, etc.,  and  also  of  credit,  may  be  traced  to  Kameralism. 
One  cannot  but  be  struck,  too,  with  the  similarity  between 
the  ideas  of  the  Kameralist  Daries  and  the  economist  Hermann 
concerning  capital.  In  these  and  other  ways  German  economics 
was  affected  by  its  peculiar  heritage. 

1  I  would  agree  with  Professor  Small  when  he  says  that  the  Kameralistic 
ideas  have  been  misrepresented.  Also  in  his  statement  that  "  they  did  not 
qualify  their  statements  about  population  quite  as  carefully  as  men  must 
who  have  in  mind  the  Malthusian  chapter  in  economic  theory."  But  it 
does  not  seem  to  me  correct  to  say  as  he  does  that  "the  came rali sis  knew  as 
well  as  modern  economists  do  that  there  was  a  limit  beyond  which  more 
mouths  could  not  be  fed.  .  .  .  Substantially  .  .  .  they  held  tenable 
views  of  the  subject  as  far  as  they  went."  The  Cameralists,  p.  15. 


C.   THE    EVOLUTION    OF    ECONOMICS  AS   A 
SCIENCE 


I.     THE   FOUNDERS 

To  one  who  turns  from  reading  a  modern  treatise  on  eco- 
nomics, whether  it  be  Mill's  Principles  of  Political  Economy  or 
the  works  of  Wagner  or  Marshall,  and  takes  up  the  various 
writings  which  have  been  dealt  with  in  the  foregoing  pages,  a 
great  development  is  evident.  Heretofore,  economic  thoughts 
have  been  gleaned  mostly  from  books  on  religion,  politics,  or 
jurisprudence.  At  most,  they  have  been  rather  sporadic  pam- 
phlets or  essays,  or  treatises  upon  political  and  technical 
matters.  Yet  it  would  be  misleading  to  say  that  these 
thoughts  were  unclassified  or  unsystematic.  The  writings  of 
Aristotle,  for  illustration,  were  truly  scientific.  In  the  works 
of  the  Roman  jurists  and  medieval  scholastics,  economic  ideas 
were  fitted  into  organized  bodies  of  thought.  The  point  is 
that  they  were  not  distinct.  They  formed  no  separate  science, 
but  lay  inchoate  within  other  bodies  of  doctrine,  —  ethics, 
jurisprudence,  and  the  like. 

To  found  the  science  of  economics,  then,  it  was  necessary  to 
sever  these  scattered  economic  ideas  and  bring  them  together 
in  a  separate  system  of  thought.  For  this  step  the  way  has 
been  somewhat  prepared,  especially  by  the  Mercantilists  and 
Kameralists  who  made  considerable  progress  in  giving  economic 
ideas  separate  attention.  It  was  not  until  the  middle  of  the 
eighteenth  century,  however,  that  Economics  was  really  founded 
as  a  science.  To  recount  the  circumstances  under  which  this 
development  was  achieved  and  sketch  the  main  features  of  the 
new  science  is  the  object  of  the  two  following  chapters,  which 
deal  with  The  Founders. 


132 


CHAPTER  IX 


ABOUT  the  middle  of  the  eighteenth  century  a  group  of  French 
thinkers  evolved  a  system  of  economic  thought  which  forms 
one  of  the  important  roots  of  the  modern  science.  One  of 
their  number  styled  that  system  "  Physiocratic,"  and  ever  since 
these  men  have  been  known  as  the  Physiocrats.  The  Greek 
words  <t>v<ns  and  /cparos  signify  the  power  of  nature,  the  system 
of  thought  now  under  consideration  being  based  upon  a  belief 
in  the  existence  of  natural  laws  which  must  be  followed  if  men 
are  to  gain  their  highest  well-being.  This  system  was  also 
known  as  the  Agricultural  System,  and  is  so  called  by  Adam 
Smith.  The  Physiocrats  liked  best  to  call  themselves  "  The 
Economists  "  (Les  Economistes) . 

Taking  the  tillage  of  the  soil  as  a  starting  point,  and  basing 
their  reasoning  on  a  concept  of  natural  liberty,  the  Physiocrats 
constructed  what  may  be  called  the  first  system  of  political 
economy.  They  endeavored  to  include  all  the  social  phenomena 
connected  with  the  production  of  wealth,  embracing  in  their 
economics  laborers,  manufacturers,  merchants,  farmers  or  agri- 
cultural entrepreneurs,  owners  of  large  estates,  and  the  ruling 
classes.  Thus  the  new  system  was  very  different  from  Mer- 
cantilism, which  was  rather  inchoate,  and  emphasized  foreign 
trade  in  a  narrow  fashion. 

I.  The  Forerunners  of  the  Physiocrats.  —  Mercantilism 
has  been  described  as  embracing  the  group  of  economic  and 
political  doctrines  which  prevailed  among  the  statesmen  and 
political  writers  of  the  sixteenth  and  seventeenth  centuries. 

133 


134  ECONOMIC  THOUGHT 

It  held  sway  on  into  the  eighteenth  century;  but  toward  the 
end  of  the  seventeenth  protests  against  the  extreme  doctrines 
of  that  system  had  begun  to  be  uttered  even  in  its  strong- 
hold, England.1  It  is  little  wonder,  then,  that  in  France,  a 
country  more  easily  led  into  revolt,  the  abuses  which  attended 
and  followed  Colbert's  regime  soon  brought  on  a  violently 
negative  economics.  Physiocracy,  though  it  meant  much  more, 
might  almost  be  defined  as  the  revolt  of  the  French  against 
Mercantilism.  This  revolt,  however,  did  not  break  out  in  any 
organized  way  until  the  middle  of  the  eighteenth  century,  and 
a  word  should  be  said  about  the  economic  thought  which  in- 
tervened, —  about  the  forerunners  of  the  Physiocrats. 

The  first  economic  theorist  of  note  to  be  produced  by  France  was 
Pierre  Boisguillebert.  An  unsystematic  writer,  Boisguillebert's 
thought  in  many  points  seems  to  foreshadow  the  later  school. 
He  was  a  contemporary  of  Colbert's,  and  his  work  was  stimu- 
lated by  the  misery  which  followed  the  financial  abuses  of 
Louis  XIV's  reign.  Tax  reform,  then,  was  the  burden  of  his 
first  book,2  equality  in  distribution  and  abolition  of  export 
duties  on  grain  being  the  chief  demands.  Two  more  theo- 
retical works  were  his  Treatise  on  Grain  and  Dissertation  upon 
the  Nature  of  Wealth.  They  were  written  in  the  interest  of 
the  landed  classes,  containing  arguments  in  favor  of  high  prices 
for  grain.  In  them  he  refers  to  Holland,  Henry  IV,  and 
Sully,3  praising  the  latter  at  the  expense  of  Colbert.  Quite 
significant  was  his  attack  upon  the  overvaluation  of  precious 
metals :  wealth  to  him  consisted  rather  in  the  supply  of  neces- 
sary and  convenient  things  which  satisfy  man's  many  different 
wants.  Such  wealth  depended,  not  upon  political  policy,  but 
upon  a  natural  harmony  of  industry. 

Contemporaneously  with  Boisguillebert  another  Frenchman  was 
driven  by  the  same  unhappy  industrial  state  of  his  country  to 

1  By  Barbon,  Child,  Locke,  and  others.     See  above,  pp.  93,  95,  102. 

*  Detail  de  la  France  sous  le  regne  present,  1697;  Factum  de  la  France, 
1707. 

3  Sully  had  said,  "Labourageet  pastuagesont  les  deux  mamelles  de  Pe'tat, " 
—  tillage  and  pasturage  are  the  breasts  of  the  state. 


THE  PHYSIOCRATS  135 

think  similar  thoughts.  In  1707  Marshall  Vauban  published 
his  Project  for  a  Royal  Tythe.  He  described  the  wretched  con- 
dition of  the  peasants,  which  he,  too,  attributed  largely  to  in- 
equality in  taxation.  His  project  concerned  a  single  direct  tax 
of  one  tenth  of  the  product  of  agriculture.  He  would  have 
permitted  a  few  duties  on  consumption,  but  on  the  whole  may 
be  regarded  as  a  pioneer  of  the  single  tax.  Vauban  considered 
labor  as  the  foundation  of  wealth;  and  of  all  labor,  that  in 
agriculture  seemed  most  important. 

Fenelon  (Telemaque,  1699)  in  favoring  freedom  of  trade  and 
emphasizing  the  character  of  the  people  rather  than  their  num- 
bers, and  Montesquieu  (Esprit  du  lois,  1748-1749)  in  holding 
that  "  natural  laws  "  obtained  in  the  social  world  and  arguing 
for  liberty,  are  also  worthy  of  mention  in  making  the  transition 
from  Mercantilism. 

But  most  noteworthy  of  all  is  Richard  Cantillon.  Indeed, 
his  Essay  upon  the  Nature  of  Commerce  in  General,1  published 
in  1755,  may  justly  be  called  the  forerunner  of  the  science  of 
political  economy,  for  it  is  a  general  treatise  and  -  inquires 
into  principles.  Wealth  he  defines  as  being  nothing  other 
than  the  comforts  and  conveniences  of  life.  The  earth  is  the 
source  or  material  whence  wealth  is  drawn;  labor  is  the  form 
which  produces  it.  The  great  merit  of  Cantillon's  essay  lies 
in  its  attempt  to  trace  the  circulation  of  wealth  to  its  ends. 
He  deals  with  internal  trade  between  town  and  country,  thus 
taking  the  sole  emphasis  away  from  foreign  commerce.  He 
argues  that  in  a  country  where  one  half  the  population  lives  in 
towns,  one  half  the  agricultural  produce  must  be  consumed  by 
the  urban  dwellers ;  and  proceeds  to  discuss  the  distribution  of 
that  produce  between  landowners  and  farmers,  and  to  analyze 
the  expenses  of  the  latter.  Cantillon  also  discusses  value  and 
price,  following  Petty  in  basing  them  upon  the  amount  of 
labor  and  land  which  contribute  to  produce  the  thing  under 
consideration.  His  manuscript  work  was  circulated  in  France 

1  See  reprint  for  Harvard  University,  G.  H.  Ellis,  Boston,  1892.  Orig- 
inally written  in  English,  the  essay  was  translated  by  Cantillon  for  the  use  of 
a  French  friend. 


136  ECONOMIC  THOUGHT 

and  must  be  accounted  an  important  factor  in  shaping  the 
thought  of  the  Physiocrats. 

Of  all  the  preceding  men  it  may  be  said  that,  while  they 
were  to  a  greater  or  less  extent  opposed  to  Mercantilism,  they 
were  limited  by  it,  and  they  founded  no  opposing  system  of 
economic  thought.  Cantillon  comes  nearest;  but  he  seems  to 
have  held  Mercantilistic  ideas  concerning  the  balance  of  trade, 
and,  as  a  banker,  his  point  of  view  was  rather  different  from 
that  of  the  Physiocrats. 

II.  The  Forces  which  gave  Rise  to  Physiocracy. — 
The  condition  of  France  which  stimulated  the  writings  of 
Boisguillebert  and  Vauban  long  remained  without  reform,  and 
is  to  be  regarded  as  first  among  the  factors  which  gave  rise  to 
Physiocracy.  When  one  calls  to  mind  the  reigns  of  Louis  XV 
and  Louis  XVI,  during  the  time  which  immediately  preceded 
the  French  Revolution,  one  remembers  at  once  the  main  features 
of  the  situation.  Louis  XV  was  the  last  to  exercise  without 
restraint  the  royal  power  in  France.  He  was  the  center  about 
which  everything  else  was  made  to  move ;  outside  of  him  there 
was  no  state.  The  consequences  of  the  royal  maxim,  "  L'Etat 
c'est  moi,"  —  I  am  the  state,  —  were  far  more  injurious  to 
France  under  him  than  under  the  regime  of  Louis  XIV.  Court 
life  was  degenerate  and  corrupt.  It  was  taken  up  with  pomp, 
extravagance,  and  debauchery.  The  women  of  the  court  in- 
terested the  king  far  more  than  the  national  welfare.  An  ex- 
hausted state  treasury  and  increasing  debts  were  the  result  of 
a  luxurious  and  extravagant  mode  of  life  and  unnecessary  wars. 
To  replenish  the  treasury  loans  were  made  under  unfavorable 
conditions.  Taxes  were  heavy,  and  disproportionate  rates 
were  paid  by  peasants  and  commons.  The  nobles  and  clergy, 
who  owned  some  two  thirds  of  the  land,  were  nearly  exempt 
from  direct  taxation,  while  a  variety  of  taxes  was  used  to  oppress 
the  lower  classes,  —  duties  on  goods,  passing  from  one  province 
to  another,  the  salt  tax,  the  poll  tax,  the  tithes,  etc.,  not  to 
speak  of  the  services  and  burdens  of  the  feudal  system.  But 
the  worst  feature  connected  with  the  taxes  was  the  manner  of 


THE  PHYSIOCRATS  137 

collecting  them.  As  one  rents  a  farm  with  the  intention  of 
cultivating  it  so  as  to  draw  from  the  soil  all  that  it  can  pos- 
sibly yield,  men,  called  farmers  of  the  revenues,  contracted  for 
the  taxes  at  a  fixed  price.  All  that  they  collected  over  and 
above  that  amount  was  their  own,  and  so  excellently  did  they 
understand  how  to  exploit  the  people  that  they  scarcely  left 
them  the  necessary  means  of  subsistence,  while  they  themselves 
frequently  retired  with  fortunes  after  a  few  years. 

Land  values  were  reduced,  or  kept  from  rising.  The  poor 
metayer,  after  paying  the  landowner  a  large  share  of  his  produce, 
was  heavily  taxed  on  the  remainder;  while  the  value  of  that 
remainder  was  reduced  by  duties  which  restricted  markets  at 
home  and  abroad,  these  restrictions  being  in  sympathy  with 
the  Mercantilist  policy  of  lowering  wages  and  other  expenses 
of  manufacture  so  as  to  enable  the  country  to  export  merchandise. 

In  short,  France  was  like  a  great  railway  or  factory  which 
has  made  no  allowance  for  depreciation  or  replacement;  her 
productive  power  was  impaired  and  her  credit  shaken. 

On  the  other  hand,  the  Mercantilist  policy  had  exhausted  its 
resources  and  had  outlived  its  usefulness.  The  passing  of  its 
power  in  England  was  evidenced  by  Cantillon's  Essay,  with  its 
emphasis  on  domestic  trade  and  its  tendency  to  regard  the 
landowner  as  the  only  independent  producer.  But  in  France 
government  supervision  kept  on  in  the  same  old  ruts,  until 
it  came  to  be  recognized  by  the  thoughtful  that  trade  and 
manufactures  had  been  unduly  fostered  at  the  expense  of  agri- 
culture. 

In  England  an  agricultural  revolution  was  being  consum- 
mated.1 The  profitableness  of  farming  on  a  larger  scale,  with 
more  capital  and  rotation  of  crops,  was  known  to  the  Physio- 
crats. In  fact,  Quesnay,  their  leader,  was  personally  interested, 
and  applied  the  new  methods  on  his  own  estate.  These  facts 
would  further  shake  the  prestige  of  Mercantilism  and  turn 
men's  thoughts  toward  the  importance  of  agriculture. 

Finally,  there  were  great  subjective  forces  at  work  for  change 
and  progress.  The  evil  state  of  affairs  just  described,  coupled 

1  See  Toynbee,  Industrial  Revolution,  Chap.  III. 


138  ECONOMIC  THOUGHT 

as  it  was  with  injustice  and  oppression,  would  ordinarily  have 
given  rise  to  immediate  discussion  and  criticism.  Under 
Louis  XIV,  however,  this  result  was  prevented  by  the  wonder- 
ful ascendency  of  the  king  and  his  dazzling  military  policy; 
while  his  successors  took  the  most  severe  measures  to  stamp 
out  writings  hostile  to  the  government.1  French  thought,  too, 
was  but  beginning  to  break  away  from  the  shackles  of  servile 
credulity,  first  as  to  religion,  then  as  to  politics.  Toward  the 
middle  of  the  eighteenth  century,  in  spite  of  oppression,  this 
emancipation  was  rapidly  effected.  Notable  changes  had  just 
been  made  and  were  being  made  in  philosophy.  Political 
writers  were  beginning  to  speculate  about  more  rational  and 
simple  laws  which  would  be  based  upon  general  principles  of  jus- 
tice. The  ferment  preceding  two  epoch-making  revolutions  was 
in  men's  minds,  a  ferment  tending  toward  the  emergence  of  the 
individual  as  the  center  of  philosophy  and  politics.  It  has 
been  noted  in  Montesquieu.  The  last  remnants  of  medieval 
credulity  were  crumbling.  The  natural  sciences  were  making 
great  strides,  and  there  was  a  tendency  to  apply  their  methods 
to  philosophy  and  social  problems,  seen,  for  example,  in  Hume 
and  Descartes. 

England  and  English  thought  were  practically  unknown  to 
the  France  of  Louis  XIV.2  In  the  two  generations  which  fol- 
lowed that  monarch's  death  "  there  was  hardly  a  Frenchman 
of  eminence  who  did  not  either  visit  England  or  learn  Eng- 
lish." 3  Among  them  were  Montesquieu,  Gournay,  and  Mira- 
beau.  The  philosophy  of  Newton  was  popularized;  the  writ- 
ings of  Locke  became  widely  accepted;  and  the  thought  of 
Shaftesbury  and  Hume  worked  as  a  subtle  leaven. 

III.  General  Outlines  of  the  Physiocratic  Political 
Economy.  —  i.  Nature  Philosophy.  —  In  order  to  understand 
the  political  economy  of  the  Physiocrats  it  is  necessary  to  grasp 
clearly  their  underlying  philosophy.  And  in  the  first  place  come 
their  "  natural  order  "  and  laws  of  nature.  Although  there 

1  See  Buckle,  History  of  Civilization,  General  Introduction,  Chap.  XII. 
2  Ibid.  » Ibid. 


THE  PHYSIOCRATS  139 

were  some  considerable  differences  among  them,  they  followed 
Rousseau  and  the  ideas  of  the  time  to  the  extent  of  believing 
in  an  ideal  order  of  things,  whose  arrangements  were  perfect 
and  whose  laws  were  the  will  of  God.  This  was  the  ordre 
naturelle.  It  stood  opposed  to  the  ordre  positive,  whose  laws 
are  human  and  whose  arrangements  are  the  imperfect  ones  of 
existing  governments,  in  this  resembling  the  distinction  made  by 
Thomas  Aquinas  and  ancient  philosophers  before  him.  In  their 
teachings  they  sought  to  expound  the  principles  of  the  ordre 
naturelle,  that  nation  being  best  governed  whose  laws,  or  ordre 
positive,  come  nearest  to  expressing  the  constitution  of  the 
natural  order. 

Their  doctrine  being  thus  founded  in  the  nature  of  things 
and  unchangeable,  the  Physiocrats  may  be  regarded  as  the 
chief  early  upholders  of  "  absolutism  of  theory  "  in  political 
economy.1 

It  is,  perhaps,  possible  to  exaggerate  the  importance  attached 
by  the  Physiocrats  to  the  divine  character  of  the  ordre  naturelle. 
Certainly,  the  significance  of  their  philosophy  in  leading  up  to 
the  idea  of  general  principles  or  social  laws  should  not  be  over- 
looked. They  believed  that  men  in  society  are  subject  to  natural 
laws  in  the  same  way  that  the  equilibrium  of  nature  is  main- 
tained by  physical  laws.  These  natural  laws  of  society  were 
the  conditions  upon  which  depended  well-being.  As  Dupont 
de  Nemours  put  it:  In  general,  natural  laws  are  the  condi- 
tions essential,  according  to  which  all  the  phenomena  of  the 
world  occur.  In  particular,  that  part  of  the  natural  law  which 
is  relative  to  man  comprises  the  conditions  essential  to  the 
assurance  of  all  the  advantages  which  the  natural  order  can 
afford.  These  conditions  "  determine  the  use  which  we  ought 
to  make  of  our  faculties  in  order  to  be  able  to  satisfy  our  needs, 
to  enjoy  to  the  fullest  extent  our  natural  right  .  .  .,"  etc.  In- 
fluenced by  contemporary  developments  in  the  natural  sciences 
and  by  the  philosophy  of  Locke,  Descartes,  and  Malebranche, 
the  Physiocrats  first  conceived  that  the  production  and  distri- 
bution of  goods  are  carried  on  according  to  fixed  laws  of  nature, 

1  See  above,  pp.  10  f. 


140  ECONOMIC  THOUGHT 

and  then  attempted  to  apply  the  exact  mathematical  methods 
of  "  natural  science  "  to  the  problems  of  distribution. 

The  real  general  criticisms  of  this  part  of  the  Physiocrats' 
philosophy  appear  to  be  that  they  did  not  make  clear  and 
definite  what  their  lois  naturelles  and  ordre  social  were,  while 
in  applying  their  ideas  they  fell  into  an  erroneous  absolutism  of 
theory.  Quesnay  in  discussing  droit  naturel  merely  says  that 
justice  is  a  sovereign  rule  to  be  recognized  by  the  light  of  reason, 
which  determines  what  pertains  to  oneself  and  what  to  others ; r 
and  Dupont  vaguely  adds  that  the  laws  of  the  social  order  em- 
brace all  the  relations  of  which  men  are  capable,  deciding  by 
the  evidence  of  their  reciprocal  interests  what  their  conduct 
toward  their  fellows  should  be  for  their  well-being.2 

Following  Locke,  the  Physiocrats  emphasized  the  individual 
and  his  rights.  Private  property  was  justified  on  Locke's 
grounds';  it  is  the  expression  of  individuality,  and  essential  to 
it.  Moreover,  the  individual  should  have  a  large  measure  of 
freedom  in  disposing  of  his  property.  But  it  must  not  be 
thought  that  they  advocated  an  unlimited  individualism,  for 
that  the  rights  of  each  limited  the  rights  of  the  other  was  clearly 
seen.3  The  freedom  of  the  foolish  man  must  in  some  instances 
be  restricted  by  the  state. 

The  Physiocrats  believed  that  the  individual  knew  his  in- 
terests best  or,  in  other  words,  would  act  more  in  accordance 
with  the  law  of  nature  than  would  government.  Hence  their 
well-known  maxim,  laissez  faire,  lalssez  passer,  that  is,  let 
things  alone,  let  them  take  their  course.  The  only  function  of 
government  according  to  this  doctrine  is  to  protect  life,  liberty, 
and  property.4  Liberty  and  property  springing  from  the  very 

1  Droit  Naturd. 

2  La  Physiocratie,   Discourse   pr&iminaire.     Note  that  the  sanction   is 
rational  —  not  divine  nor  metaphysical. 

3  Quesnay  said  a  law  of  individual  action  consisted  in  "de  faire  son  sort, 
le  meilleur  qui    lui  soit  possible   sans  usurpation  sur  le  droit  d'autrui." 
Oncken,  "Quesnay,"  in  Conrad's  Handworterbuch. 

4  Some  of  the  Physiocrats  favored  a  monarchical  form  of  government  as 
the  one  which  could  most  easily  enforce  their  reforms,  but  the  duties  of  the 
monarch  were  merely  to  give  effect  to  natural  law.    They  were  advocates 
of  what  is  known  as  "enlightened  absolutism." 


THE  PHYSIOCRATS  141 

nature  of  man  and  being  necessary  to  his  individualism,  human 
laws  should  merely  recognize,  formulate,  and  maintain  them. 

Surely  this  conception  of  a  great  harmonious  law  of  nature 
carried  out  through  individual  action  is  evidence  of  their  ex- 
ceeding optimism.  It  will  not  be  surprising,  then,  to  learn 
that  optimism  has  been  a  marked  characteristic  of  French 
economics  down  to  this  very  day. 

With  such  an  underlying  philosophy  the  Physiocrats  set  to 
work  to  find  the  causes  for  the  economic  evils  which  afflicted 
France.  Their  predecessors,  the  financiers,  had  been  content 
to  experiment  with  taxation  and  money;  they  sought  to  get 
at  the  roots  of  the  matter.  These  they  found  in  the  poverty 
of  the  people,  as  is  indicated  in  their  celebrated  maxim,  "  poor 
peasants,  poor  kingdom ;  poor  kingdom,  poor  king." 

2.  The  Produit  Net;  the  Physiocrats'  Ideas  on  Surplus.  — 
But  the  peasants'  poverty  meant  the  poverty  of  agricultural 
classes,  and  this,  together  with  their  nature  philosophy,  the 
influence  of  such  writings  as  Cantillon's,  their  hostility  to  Mer- 
cantilism, and  perhaps  an  unconscious  bias  arising  from  their 
leader's  ownership  of  land,  caused  them  to  lay  great  stress  upon 
agriculture.  Only  agriculture,  they  said,  including  mining, 
fishing,  and  other  extractive  industries,  is  able  to  increase  the 
wealth  of  a  nation.  In  agriculture,  nature  labors  along  with 
man,  by  her  bounty  yielding  not  only  what  the  agricultural 
laborer  or  farmer  consumes,  but  also  a  surplus  which  nourishes 
the  other  classes  of  society.  The  land,  or  agricultural  labor,  — 
both  ways  of  putting  it  are  found,  —  produces  more  than  enough 
to  satisfy  the  needs  of  the  laborers  in  agriculture,  and  the 
excess  allows  commerce  and  the  professions,  favoring  popula- 
tion and  animating  industry.  Each  cultivator  was  assumed  to 
produce  enough  for  eight  persons,  including  his  own  family  of 
four,  and  one  family  belonging  to  the  manufacturing,  commer- 
cial, or  proprietory  classes.1  Thus  the  Physiocrats  introduced 
the  idea  of  a  surplus  due  to  the  bounty  of  nature. 

This  unique  surplus  was  called  by  them  the  produit  net 
or  net  product.  It  was  similar  to  the  rent  of  the  classical 
1  (Euvres  de  Quesnay,  Oncken  ed.,  Tableau,  p.  320. 


1 42  ECONOMIC  THOUGHT 

economists,1  being  simply  the  value  of  that  part  of  the  total 
produce  of  extractive  industry  which  remained  after  deducting 
the  wages  of  the  labor  and  the  interest  of  the  capital  which 
helped  produce  it. 

Commerce  and  -manufactures  were  regarded  as  non-productive. 
They  enhance  the  value  of  the  raw  materials  which  form  the 
basis  for  the  produit  net,  but  only  enough  to  pay  for  the  labor 
and  capital  used  in  the  process.  Thus  if  a  carpenter  makes  a 
chair  from  a  piece  of  lumber,  the  whole  difference  between  the 
value  of  the  chair  and  that  of  the  lumber  is  the  compensation 
of  the  carpenter.  No  surplus  remains  for  any  one  else.  "  The 
cost  of  commerce,"  wrote  the  Physiocratic  leader,  "  although 
necessary,  ought  to  be  regarded  as  a  burdensome  expense  levied 
upon  the  revenue  of  the  landed  proprietors ;  "  and  the  Physio- 
crats held  that  a  nation  which  depends  upon  manufactures  and 
commerce  must  live  off  its  capital. 

It  will  be  observed  at  once  that  this  reasoning  involves  a 
peculiar  definition  of  the  word  "production."  To  the  Physio- 
crats production  meant  surplus  making;  that  industry  is  pro- 
ductive which  increases  the  wealth  of  the  nation  by  making 
more  things  than  are  consumed  in  the  process.  If  this  definition 
be  borne  in  mind,  their  doctrines  are  more  easily  understood, 
and  do  not  seem  so  absurd  as  when  the  illogical  attempt  is 
made  to  apply  our  definitions  to  their  words. 

But  more  than  this,  to  them  production  meant  stuff  making, 
and  their  surplus  meant  primarily  a  material  surplus.  The 
majority  of  them  thought,  or  implied,  that  by  growing 
wheat  a  man  added  to  the  wealth  of  the  nation  more  than  he 
did  by  making  bread  out  of  the  wheat.2  Only  the  growing  or 
catching  or  digging  up  of  something  seemed  to  increase  the 
world's  stock  of  "  real  "  wealth.  This  idea  of  productivity 

1  See  below,  pp.  221  f. 

1  This  does  not  mean  that  their  physics  was  wrong  and  that  they  violated 
the  principle  of  conservation  of  matter.  Some  cruder  utterances  might 
imply  this,  but  their  real  fault  lay  in  denying  a  surplus  to  manufactures  and 
commerce.  This  error  is  based  on  faulty  psychology  rather  than  bad 
physics. 


THE  PHYSIOCRATS  143 

and  the  nature  of  wealth  was  in  keeping  with  their  nature 
philosophy,  and  was  an  expression  of  their  reaction  from  Mer- 
cantilism. They  saw  that  money  was  not  the  most  important 
thing ;  but  they  went  too  far  in  their  distinction  between  natural 
and  artificial  wealth,  and  in  the  corresponding  distinction 
between  the  net  productivities  of  those  who  produced  the  two. 

In  accord  with  the  foregoing  views,  the  Physiocrats  added 
to  their  demand  for  industrial  freedom  another  for  an  increased 
application  of  capital  to  land:  by  devoting  more  to  agricul- 
ture, and  by  leaving  industry  free  to  obey  the  laws  of  nature, 
both  the  suffering  of  the  people  and  the  deplorable  condition 
of  the  public  finances  might  be  relieved.  Thus  the  nation 
would  cease  to  consume  its  capital  unproductively. 

3.  Value.  —  With  such  a  basis  for  their  economics,  it  is  not 
strange  that  the  concept  of  value  played  but  a  little  part  in 
the  Physiocratic  system.  Their  attention,  after  all,  was  largely 
addressed  to  production :  though  Turgot,  for  example,  treats 
wages  and  interest  to  some  extent  as  shares  in  distribution,  it  is 
on  the  whole  rather  as  costs  to  the  producer  that  they  are 
regarded.  Taxation  makes  a  possible  exception  to  these  state- 
ments. This,  coupled  with  .  their  peculiar  ideas  about  pro- 
ductivity, made  distribution  mean  a  circulation  and  division 
of  products  rather  than  a  sharing  of  values.  Moreover,  the 
problem  of  labor  vs.  capital,  and  all  the  complexities  of  distri- 
bution in  a  freer  and  more  advanced  industrial  regime,  were 
rudimentary  or  absent. 

Enough  was  written,  however,  to  enable  us  to  form  some 
judgment  concerning  their  idea  of  value.  Quesnay  and  others 
made  the  distinction  between  value  in  use  (usuelle),  and  value 
in  exchange  (venale),  exchange  value  being  a  market  relation  and 
capable  of  exceeding  costs ;  and  they  considered  that  wealth  de- 
pended upon  exchange  value.1  Quesnay  holds  that  the  general 
cause  of  the  price  of  a  commodity  lies  in  its  scarcity  or  abun- 
dance, as  these  find  expression  in  competition  between  buyers 
and  sellers.2  By  Le  Trosne 3  the  general  estimation  or  judg- 

1  (Euvres  de  Quesnay,  Oncken  ed.,  p.  353. 

2  See  Sewall,  Theory  of  Value  before  Adam  Smith,  p.  87. 

3  De  Vinierei  Social  (1777) ;  Daire,  Physiocrates,  pp.  890  ff. 


144  ECONOMIC  THOUGHT 

ment  is  emphasized,  and  prices  are  fixed  by  competition  which 
expresses  it.  This  general  or  common  estimation  is  the  result 
of  the  cooperation  of  several  factors,  among  which  are  the 
utility  generally  attributed  to  a  good,  the  average  indispensable 
costs,  demand  relative  to  purchasing  power,  and  available  supply. 

Turgot,  in  an  incomplete  essay,  Valeurs  et  Monnaies,  states 
that  an  isolated  individual  values  goods  according  to  their 
utility,  but  in  cases  of  equal  utility  he  assigns  different  values 
according  to  the  effort  required  to  obtain  them.  In  society, 
however,  the  valuations  of  the  parties  to  an  exchange  may 
differ.  Here  the  price  will  lie  between  the  valuations  of  buyer 
and  seller ;  and,  with  free  competition,  each  gets  a  surplus.1 

The  logical  analysis  suggested  by  their  ideas  would  be  this: 
the  value  of  a  good  is  based  upon  its  usefulness  (utility) ;  in 
the  case  of  a  manufactured  article  it  consists  of  two  parts,  one 
the  original  material,  the  other  the  energy  expended  in  trans- 
porting and  working  it  up;  the  value  of  the  former,  being 
in  part  the  gift  of  nature,  is  determined  by  the  ratio  of  its 
supply  to  the  demand  for  it,  while  to  this  must  be  added  the 
subsistence  of  those  who  worked  it  up  into  the  finished  form 
and  marketed  it. 

The  Physiocrats'  whole  philosophy  of  wealth  made  a  recog- 
nition of  the  importance  of  utility  essential,  and  its  essentiality 
was  clearly  stated.  It  is  obvious  that  their  surplus,  the  produit 
net,  could  not  have  its  value  determined  by  cost.  It  was  the 
gift  of  nature  and  a  surplus  above  cost.  As  productivity  was 
confined  to  the  yielding  of  raw  materials,  value  and  productivity 
could  not  be  coordinated  on  any  basis  of  cost  of  production. 
It  might  have  been  held  that  natural  value  was  conditioned  by 
the  amount  of  material  contained,  but  this  would  not  have  ex- 
plained the  value  of  richesses  steriles,  the  products  of  manu- 
facture. Utility  was  common  to  all,  but  one  part  of  the  nation's 
sum  of  exchange  values,  or  wealth,  was  effected  without  cost; 
another,  only  partly  through  cost.  Half  consciously,  perhaps, 

1  This  implies  a  conflict  with  the  Physiocratic  idea  of  a  single  net  product 
and  sterility  of  all  but  agriculture.  See  Kaulla,  Entwickelung  der  Modernen 
Werththeoricn,  p.  127. 


THE  PHYSIOCRATS  145 

this  difficulty  was  passed  over  by  virtually  limiting  the  dis- 
cussion to  market  values  alone,  demand  and  supply  being  left 
with  little  analysis. 

Thus  it  does  not  seem  possible  to  say  that  the  Physiocrats 
regarded  value  as  determined  by  cost.1  They  recognized  that 
price  must  cover  necessary  costs,  but  this  is  far  from  making  a 
"cost  theory"  of  value.  They  emphasized  the  annual  pro- 
duction as  a  factor,  but  this  was  because  it  limited  the  ability 
to  purchase  and  hence  the  demand  for  goods. 

4.  Social  Classes  and  Scheme  of  Distribution ;  the  Tableau 
Economique.  —  The  idea  that  extractive  industries  alone  were 
"  productive  "  led  the  Physiocrats  to  classify  men  into  three 
groups :  (i)  the  "  productive  "  class  or  cultivators,  who  are 
engaged  in  extractive  industry,  chiefly  agriculture;  (2)  the 
proprietors  or  landowners,  sometimes  called  disponible, 
meaning  independent  or  unoccupied,  who  were  held  to 
be  partly  productive;  (3)  the  non-productive,  called  la  classe 
sterile.  This  last  group  was  considered  to  embrace  merchants, 
artisans,  and  professional  men.  It  was  sometimes  called  the 
stipendiary  class,  for  its  members  were  regarded  as  being  in 
a  sense  the  wage-earners  of  the  "  productive "  class,  from 
which  they  received  their  revenue.  The  members  of  the  pro- 
prietor class  were  looked  upon  as  dependent  upon  the  cultiva- 
tors ;  and,  a  great  part  of  their  expenses  being  those  of  simple 
consumption,  they  were  largely  sterile.  But  by  natural  law 
they  are  charged  with  the  administration  and  "reparation  "  of 
their  patrimonies,  and  expenses  incurred  for  the  conservation 
and  improvement  of  their  properties  are  productive.  The 
proprietor  class,  then,  is  not  to  be  confounded  with  the  purely 
sterile  class.2 

Perhaps  the  chief  formal  problem  in  theory  to  which  the 
Physiocrats  addressed  themselves  was  the  formulation  of  the 
normal  distribution  or  circulation  of  the  annual  product  of 
extractive  industry.  This  was  practically  an  elaborate  analysis 

1  Sevfrall,  above  cited;  and  Davenport,  Value  and  Distribution  (p.  107), 
to  the  contrary. 

1  (Euvres  de  Quesnay,  Oncken  ed.,  Tableau,  p.  318. 
L 


146  ECONOMIC  THOUGHT 

of  the  expenditures  of  the  farming  class;  for  the  land  is  the 
ultimate  source  of  all  wealth,  and  the  entire  product  must 
ultimately  return  to  the  hands  of  the  productive  class.  It 
is  important  to  remember  that  their  object  was  to  ascertain 
the  natural  laws  whose  observance  would  restore  France  to 
opulence. 

This  problem  they  attacked  as  follows.  Assuming  that  agri- 
culture yields  returns  of  100  per  cent,  and  that  productive  and 
"  non-productive "  expenses  are  equal,  they  let  the  value  of 
the  year's  harvest  be  put  at  some  estimated  amount,  say 
$250,000,000.  Two  classes  are  immediately  interested  in  this 
amount :  the  landowners  and  the  cultivators.  According  to  the 
normal  distribution,  $100,000,000,  is  at  once  withdrawn  or  re- 
tained in  the  immediate  interest  of  the  cultivators.  This  is  to 
provide  the  annual  expenses  for  circulating  farm  capital  (avances 
annuelles),  including  seed,  manure,  wear  and  tear  on  machinery, 
wages,  etc.  From  it,  also,  must  ultimately  be  replaced  to  the 
farmer  his  original  investment  in  seeds,  machinery,  etc.  (avances 
primitives).  The  balance,  or  $150,000,000,  is  marketed, 
$50,000,000  going  to  the  non-productive  class  for  such  things  as 
tools  and  clothes,  and  the  remaining  $100,000,000  going  to  the 
landlord.  With  a  deduction  for  interest  on  his  investment  in 
improvements  like  fences,  drains,  and  buildings  (avances  fon- 
cieres)  this  is  the  surplus,  or  produit  net.  It  is  upon  the  circula- 
tion of  this  surplus  (dispenses  du  revenu)  that  the  prosperity 
of  the  nation's  industry  depends.  It  is  distributed  by  the  pro- 
prietors between  cultivators  and  the  artisans  and  merchants  of 
class  3,  each  class  receiving  $50,000,000.  That  is,  the  landlord 
is  assumed  to  divide  his  expenses  between  manufactures,  pro- 
fessional services,  etc.,  on  the  one  hand,  and  raw  materials,  like 
foodstuffs,  on  the  other.  Then  the  artisans,  etc.,  of  class  3  get 
their  raw  materials  from  class  i ;  and  the  farmers  of  class  i  get 
their  tools  and  other  manufactured  products  from  class  3  ;  with 
the  net  result  that  class  3  retains  just  enough  to  cover  costs  and 
replace  capital,  while  class  i  shows  a  surplus  for  the  next  year. 

One  diagrammatic  representation  of  this  scheme  was  similar 
to  the  following  abridgment :  — 


THE  PHYSIOCRATS 


147 


(1) 

Dispenses  Productive*} 

Circulating  capital  In  extractive 
Induitry/ivinces  innuellei  ind 

primitives) 
$100,000.000 


Sure*  which  yield 

replacement  and 
Interest  for  fUed 
capital;  subsistence 
ind  profits  of  tilt 

husbandmen. 


Total  Output 
$250,000,000  ( 1,  2,   and  3  7 


(2) 
Dispenses  du  Revenue: 

Revenue  for -Sovereign,  land 

and  tithe  owneis, 

$100000.000 


(3) 

Dispenses  Steriles; 

Circulating  capital  In  manufacture* 

and  commerce, 

$50.000.000 


$150.000.000 


$50,000.000 


$50.000.000  ^+$10,000,000  (net  productj 
$50  000  000-4- 


$100,000,000  O«>1  n*t  product)  J100.000.000 
$150000.000 


Expenditures   of 
proprietors   and 
productive  classes 
for  manufacture* 
and  service*. 


The  conclusion  is  that  the  manufacturing  and  trading  class 
is  dependent  upon  the  replacement  of  agricultural  capital ;  and 
if  increased  luxury  leads  to  a  diversion  of  part  of  the  normal  flow 
to  class  i  away  from  it  to  class  3,  agricultural  capital  will  be 
impaired  and  the  succeeding  produit  net  suffer. 

5.  Wages  and  Interest.  —  As  to  wages,  the  Physiocrats,  like 
other  economic  thinkers  of  precapitalistic  days,  made  little 
contribution.1  The  laborer  was  supposed  to  get  just  enough  to 
live  on,  and  the  question  as  to  what  constitutes  enough  to  live 
on  was  not  analyzed.  Turgot  argues  that  inasmuch  as  the  em- 
ployer will  pay  as  little  as  possible  and  has  his  choice  among 
many  laborers,  wages  are  in  effect  limited  to  what  is  necessary 
for  the  subsistence  of  the  laborer.2  There  is  no  theory  of  popu- 
lation, nor  any  discussion  of  the  relation  of  capital  to  wages. 
The  assumption  of  a  subsistence  wage  was  in  accord  with  the 
facts  in  France,  and  it  was  made  /the  "  natural  "  wage.  The 

1  Cf.  Picard,  "fetude  sur  quelques  Th6ories  du  Salaire  au  XVTIIe  SiScle," 
Rev.  d'Hist.  des  Doct.  Econ.,  1910,  pp.  153  f. 

2  Reflexions,  56. 


148  ECONOMIC  THOUGHT 

question  of  ethical  responsibility  was  thus  removed,  and  labor's 
"  share  "  formed  no  problem. 

It  will  be  observed  that  this  idea  of  wages  made  the  produit 
net  a  more  definite  and  simple  thing  to  the  Physiocrats  than  it 
could  have  been,  had  a  problem  of  wage  determination  existed 
in  their  minds;  their  surplus  rested  upon  a  subsistence  basis. 
Furthermore,  though  they  worked  out  no  theory  of  population, 
one  can  read  between  the  lines  that  they  thought  the  produit  net 
would  raise  up  consumers  for  itself,  and  thus  insure  its  own 
value,  so  to  speak.1 

In  the  matter  of  capital  and  interest,  more  important  contribu- 
tions were  made.  The  distinction  between  money  and  capital 
was  drawn ;  the  origin  of  the  latter  in  saving  was  recognized ; 
and  the  necessity  for  constant  advances,  consumption,  and 
reproduction  was  stated.2  Evidences  are  to  be  found  of  some 
realization  of  the  productivity  of  capital  and  its  significance.3 
In  the  case  of  agricultural  capital,  one  writer  points  out  that 
there  must  be  a  net  profit  or  it  would  be  otherwise  employed.4 
It  was  also  held  that  interest  is  possible  because  land  yields  its 
produit  net ;  and  the  higher  the  price  of  grain  and  the  greater 
the  produit  net,  the  higher  the  interest  rate.5  Indeed,  Quesnay, 
rejecting  "  supply  and  demand  "  and  "  risk  "  theories,  argued 
that  the  rate  of  interest  is  subject  to  a  natural  law  as  is  the  revenue 
from  land ;  as  the  income  to  be  gained  by  its  purchase  is  the 
law  to  the  buyer  and  seller  of  land,  the  same  law  ought  to  govern 
the  rate  of  interest.6  Turgot,  who  was  not  formally  a  Physi- 
ocrat, suggested  a  productivity  theory  according  to  which 
interest  is  paid  because  the  capitalist  has  the  alternative  of 
investing  in  land,  but  he  did  not  develop  the  idea.  But,  after 
all,  it  must  again  be  recalled  that  the  Physiocrats  were  chiefly 

1  Cf.  e.g.  Turgot,  Septieme  lettre  sur  le  commerce  des  grains  (1770)  (ed. 
Guillamin),  pp.  214  ff.    Turgot  comes  near  to  a  theory  of  population.    . 
1  E.g.  Turgot,  Reflexions  sur  la  formation  et  la  distribution  des  richesses, 

•  Ibid.  57-63. 

*  Merder  de  la  RiviSre,  L'ordre  naturel  (Daire's  ed.),  p.  459. 
6  Onckerf,  "Quesnay,"  in  Conrad's  Handworterbuch. 

•Quesnay,  "Observations  upon  L 'Interest  de  V argent  (1776),"  Oncken's 
(Euvres  de  Quesnay,  p.  401. 


THE  PHYSIOCRATS  149 

interested  in  production  and  exchange.  Hence,  interest  was 
dominantly  regarded  not  so  much  as  a  share  in  distribution  as 
an  expense  of  production — as  an  avarice  from  the  revenues  of 
agriculture.  As  such,  competition  made  it  just  enough  to  cover 
costs ;  its  "  natural  "  rate  was  as  low  as  possible.  The  founder 
of  the  school  appears  to  have  generally  regarded  interest  as  a 
mere  replacement  fund,  not  as  a  net  income.1 

6.  The  Single  Tax.  —  In  strict  consistency  with  their  doctrine 
that  only  extractive  industries  produce  a  surplus  or  produit 
net,  and  in  harmony  with  their  desire  to  relieve  the  cultivator 
or  farmer,  as  distinct  from  the  landowner,  the  Physiocrats  upheld 
a  single  tax  on  the.net  income  from  land.  This  was  their  impot 
unique.  Wages  and  profits  being  reduced  to  a  minimum  by 
competition,  while  land  furnishes  the  only  return  above  costs, 
they  argued,  as  Locke  and  others  before  them,  that  all  taxes  must 
fall  on  land  ultimately.  Thus  it  seemed  better,  as  a  matter  of 
economy,  to  collect  directly  from  those  who  must  pay  in  the 
end.  Every  time  a  tax  is  transferred,  said  they,  it  increases. 
If  the  tea  in  a  merchant's  store  is  taxed,  he  not  only  adds  the 
amount  of  the  tax  to  the  price  of  his  tea,  but  also  enough  more  to 
pay  interest  for  the  money  advanced  in  taxes,  and  to  compen- 
sate for  the  annoyance  and  trouble  involved.  The  one  who  buys 
the  tea  then  transfers  the  tax  to  another  with  an  addition,  and  so, 
continually  increasing,  it  works  on,  down  to  the  owners  of  the  soil. 

Though  the  single-tax  idea  was  based  upon  an  erroneous  no- 
tion of  productivity,  and  violates  important  principles  of  fiscal 
expediency,  it  rendered  a  great  service.2  Under  the  advocacy 
of  it,  the  cumbersome,  wasteful  mass  of  taxes  which  prevailed 
was  criticised ;  and  the  discussions  to  which  it  gave  rise  led  to  a 
better  understanding  of  the  principles  of  taxation. 

IV.  The  Chief  Physiocrats  and  their  Writings.  —  Though 
they  were  mostly  differences  of  emphasis,  rather  than  anything 

1  Analyse  du  Tableau  Economique  (Daire's  ed.),  p.  62. 

*  The  modern  single-tax  idea  of  Henry  George  and  agrarian  socialists 
is,  of  course,  quite  different  from  the  Physiocratic  plan.  The  latter  recog- 
nized the  rights  of  the  landowner  and  would  have  guaranteed  property 
in  land.  Nor  did  they  aim  to  seize  an  "  unearned  "  income. 


150  ECONOMIC  THOUGHT 

more  fundamental,1  some  differences  of  opinion  existed  among 
the  Physiocrats,  the  theory  of  interest  and  the  degree  of 
government  interference  being  debated  points.  Just  a  word, 
then,  to  individualize  the  more  important  of  them.  The  chief 
representatives  of  the  school  were  Francois  Quesnay  (1694- 
1774),  Jean  Vincent  de  Gournay  (1712-1759),  and  Anne  Robert 
Jacques  Turgot  (1727-1781).  There  are  others,  like  Mirabeau, 
Dupont  de  Nemours,  Mercier  de  la  Riviere,  Baudeau,  and  Le 
Trosne,  who  are  important ;  but  the  three  first  named  are  the 
more  original.  Few,  if  any,  ideas  of  fundamental  importance 
were  added  by  the  others. 

It  may  be  truly  said  that  from  the  viewpoint  of  economic 
theory  Quesnay  is  the  chief  figure.  He  was  the  unquestioned 
leader  of  those  "Economistes  "  who  formed  the  school  or  sect. 
His  chief  writings  were  the  following:  an  article  on  "  Fermiers" 
(1756),  oneon  "  Grains"  (1757)  —  both  published  in  Diderot  and 
D'Alembert's  Encyclopedic;  the  Tableau  Economigue2  (1753- 
J75^)  j  "  Maximes  generates  du  gouvernement  economique  d'un 
royaume  agricole,"  published  in  Mirabeau's  Philosophic  Rurale 
(J763) ;  and  his  Droit  Naturel  (1768).  In  the  first  two  articles 
the  basis  for  his  system  will  be  found.  His  ideas  as  to  the  dis- 
tribution of  wealth  are  stated  and  illustrated  by  tables  in  the 
famous  Tableau  Economique.  Quesnay  led  in  his  emphasis  of 
agriculture,  demanding  that  it  be  brought  to  the  highest  per- 
fection. The  maxim  "  poor  peasant,  poor  kingdom ;  poor 
kingdom,  poor  king  "  is  generally  attributed  to  him.  He  favored 
freedom  of  trade  and  industry  to  give  agriculture  the  greatest 
chance  to  expand. 

Gournay  was  not,  like  Quesnay,  the  son  of  a  farm-owner.  He 
spent  fifteen  years  engaged  in  trade  at  Cadiz,  then  traveled  in 
England,  Holland,  and  Germany,  and  finally  settled  down  in  1751 
as  an  intendant  of  commerce.  He  translated  certain  works  of 
Sir  Josiah  Child  and  of  Culpepper;  but  wrote  little  himself. 

1  These  differences  are  emphasized  by  Oncken  in  his  introduction  to  the 
(Euvrcs  de  Quesnay. 

2  See  above,  p.  147.    This  work  was  reproduced  in  facsimile  for  the  British 
Economic  Association,  London,  1894. 


THE  PHYSIOCRATS  151 

His  chief  work  was  administrative  and  advisory  to  others.  He 
lived  in  Turgot,  whose  Eloge  upon  the  death  of  Gournay  is  the 
chief  source  for  the  latter's  ideas.  These  were,  in  brief,  that  gov- 
ernment should  be  confined  to  restoring  liberty  to  all  branches  of 
commerce  and  to  encouraging  competition,  thus  protecting  pro- 
duction and  lowering  prices.  He  believed  that  manufacture  and 
trade  were  productive.  To  Gournay  is  commonly  attributed  the 
famous  saying  laissez  fair  e,  laissez  passer,  and,  whether  or  not  he 
originated  the  whole  maxim,  he  seems  to  have  made  it  his  own. 

Turgot,  while  keeping  himself  formally  distinct  from  the  sect 
of  the  Physiocrats,  was  in  essential  agreement  with  their  main 
doctrines.  He  claimed  Gournay  for  his  master,  and,  while 
emphasizing  their  non-productivity,  he  leaned  toward  a  greater 
recognition  of  the  service  of  the  non-"  productive "  classes. 
But  he  differed  from  both  Quesnay  and  Gournay  in  some 
points.1  It  was  his  fortune  —  first  as  intendant,  then  as  finance 
minister  to  Louis  XVI  —  to  put  in  practice  some  Physiocratic 
principles.  His  best  known  writings  are:  Reflexions  sur  la 
formation  et  distribution  des  richesses  (1766,  published  1769) ;  a 
memorial  Sur  les  prets  d' argent  (1769) ;  letters  on  la  liberte  d^l 
commerce  des  grains  (1770).  His  letter  to  the  Abbe  Cice  (1749) 
on  the  subject  of  paper  money  and  coin  was  an  early  blow  at 
Law's  system,  and  shows  a  good  understanding  of  the  relation  of 
money  to  price. 

Turgot's  Reflexions  consists  of  a  hundred  paragraphs,  the  first 
seven  of  which  attempt  to  prove  that  agriculture  alone  increases 
the  wealth  of  the  nation  and  that  manufactures  and  trade 
depend  upon  it.  In  the  last  few  paragraphs  he  concludes  that 
land  revenues  are  the  only  proper  source  for  taxes.  The  re- 
mainder deals  largely  with  money  and  capital. 

There  has  been  some  difference  of  opinion  as  to  the  historic 
significance  of  these  Reflexions.  Cossa  declares  that  the  book 
deserves  to  be  entered  in  red-letter,  as  the  first  scientific  treatise 
on  social  economics.2  On  the  other  hand,  Jevons  and  Higgs  3 

1  See  Oncken,  Gesch.  d.  National  Okonomie,  pp.  459  ff. 
1  Introduction  to  Political  Economy,  p.  264. 
3  The  Physiocrats,  p.  94. 


152  ECONOMIC  THOUGHT 

would  rather  emphasize  Cantillon's  work  in  this  connection. 
There  can  be  little  doubt  as  to  the  superiority  of  Turgot's  work. 
But  when  we  reflect  that  he  had  the  shoulders  of  Cantillon, 
Hume,  Gournay,  and  Quesnay  to  stand  on,  there  may  be  some 
doubt  as  to  which  did  the  greater  work,  relatively.  It  may 
simply  be  suggested  that,  while  Cantillon  wrote  a  scientific 
essay,  Turgot  wrote  a  bigger  and  better  one,  just  as,  ten  years 
later,  Adam  Smith  surpassed  Turgot.  All  three  are  now  read 
as  milestones  in  the  history  of  economic  thought.  The  question 
is  to  be  decided  in  the  light  of  obstacles  overcome  or  of  the 
amount  of  new  truth  given. 

For  the  best  concise  statements  of  the  Physiocratic  doctrine 
one  must  turn  to  L'ordre  naturel  et  essentid  des  societes  politiques 
(Paris,  1767)  by  Mercier  de  la  Riviere;  Abbe  N.  Baudeau's 
Premiere  introduction  a  la  philosophic  economigue  (Paris,  1771) ; 
and  Le  Trosne's  De  I'ordre  social  (1777).  The  work  of  Mira- 
beau's  called  Philosophic  rurale  ou  Economic  generate  et  politigue 
de  V agriculture  (1763)  is  also  to  be  mentioned  in  this  connection. 
Dupont  de  Nemours  also  wrote  a  brief  but  comprehensive  work, 
Physiocratie  ou  constitution  naturelle  du  gouvernement  le  plus 
avantageux  au  genre  humain  (1767).  It  was  from  this  title  that 
the  school  received  its  name. 

V.  English  Followers.1  —  Contrary  to  the  common  opin- 
ion, the  Physiocrats  were  not  without  some  following  in 
English  thought,  though  it  was  a  weak  one.  In  America 
Benjamin  Franklin  was  acquainted  with  the  Physiocrats 
and  had  some  notions  concerning  productivity  similar  to 
theirs.  And  in  England,  in  1797,  "  some  false  doctrines 
of  Dr.  Adam  Smith  and  others  "  were  attacked  on  Physio- 
cratic grounds  by  an  anonymous  writer.  Prosperity  was  made 
by  this  writer  to  depend  upon  high  rents,  the  "  net  product  "  of 
the  Economistes.  Another  anonymous  work,  Sketches  on 
Political  Economy  .  .  .  with  an  Exposition  of  some  of  the  leading 

1  See  Seligman, "  Some  Neglected  British  Economists,"  Econ.  Jr.,  XIII,  336 
ff.  (1903) ;  Higgs,  The  Physiocrats,  p.  137.  For  the  influence  of  Physiocratic 
thought  in  other  countries  see  Cossa,  Introduction  to  Political  Economy, 
p.  272. 


THE  PHYSIOCRATS 


153 


Tenets  of  the  Economists  (1809),  argued  that  capital  cannot  repro- 
duce with  an  increase,  —  that,  being  itself  a  result,  it  cannot 
cause  that  from  which  it  results.  This  land  alone  could  do. 

The  little  book  by  Brydges  on  Population  and  Riches  (1819) 
also  reminds  one  of  the  Physiocrats,  as  he  states  that  the  basis 
of  all  riches  is  the  produce  of  nature,  that  a  man's  labor  in  agri- 
culture can  produce  a  surplus  above  his  subsistence,  which  sur- 
plus is  distributed,  first  among  manufacturers,  secondly  among 
non-producers.  He  carries  the  ideas  of  Smith  and  the  Physio- 
crats on  non-productive  classes  to  the  extreme.  The  animus 
of  the  work  appears  to  be  a  defense  of  the  landed  interests  in 
England.1 

William  Spence  may  also  be  mentioned  here  as  one  who  up- 
held Pbysiocratic  theories.2  The  Industrial  Revolution,  how- 
ever, had  made  such  views  as  to  the  relative  position  of  land 
and  capital  pretty  clearly  untenable  in  England. 

VI.  Opponents. — Among  the  opponents  of  the  Physiocrats, 
Galiani  and  Condillac  may  be  especially  mentioned.3  The 
Italian,  Galiani,  published  a  book  on  money  in  1750,  and  his 
better  known  Dialogues  sur  le  commerce  des  bles  in  1770.  He 
was  an  opportunist,  opposing  the  idea  of  the  natural  order.  In 
his  work  on  Le  commerce  et  le  gouvernement  (1776),  Condillac  re- 
futed the  idea  that  manufactures  are  sterile,  and  contributed  to 
the  theory  of  value.4 

VII.  The  Practical  Influence  of  Physiocracy.  —  The  sys- 
tem of  the  Physiocrats  found  admirers  among  sovereigns  of 
various  states.  Those  who  are  known  to  have  been  believers 
in  it  to  a  greater  or  less  extent  are  Catherine  II  of  Russia, 
Joseph  II  of  Austria,  his  brother  Leopold,  Archduke  of  Tus- 
cany, and  Carl  Friedrich,  Margrave  of  Baden.  Joseph  II  and 

1  It  is  interesting  to  note  that  he  drew  largely  upon  Sismondi. 

2  See,  e.g.,  his  Tracts  on  Political  Economy,  1822. 

8  The  Italians,  Beccaria  and  Verri ;  the  Germans,  Moser,  Busch,  and 
Justi ;  and  the  Frenchmen,  Forbonnais,  Necker,  and  Herrenschwand,  may 
also  be  classed  as  opponents.  For  others  see  Reseller's  Geschichte  der  Nat.- 
Oek.  in  Deutschland.  4  See  below,  p.  448. 


154  ECONOMIC  THOUGHT 

Leopold  do  not  appear  to  have  been, very  earnest  followers 
of  the  Physiocrats.  They  made  some  attempts,  however,  to 
carry  out  their  principles,  except  in  so  far  as  they  related  to  free 
trade.  Carl  Friedrich,  the  Margrave  of  Baden,  was,  on  the  con- 
trary, a  whole-souled  believer  in  the  Physiocratic  system.  He 
even  wrote  a  work  advocating  it,  entitled  Abrigi  des  principes 
d'Economie  politique  (A  Compendium  of  the  Principles  of 
Political  Economy),  published  in  1775.  He  made  an  attempt 
to  introduce  the  system  practically  in  three  villages  in  Baden ; 
namely  Dietlingen,  Theningen,  and  Balingen.  It  was  impos- 
sible to  carry  out  the  attempt.  It  must  necessarily  have  failed, 
even  supposing  the  teachings  of  the  Physiocrats  substantially 
correct.  An  instantaneous  change  from  one  system  of  public 
economy  to  another  and  quite  different  one  can  hardly  be  ac- 
complished without  serious  harm.  Again,  the  matter  was  made 
worse  by  endeavoring  to  maintain  both  systems  side  by  side  in 
the  same  land.  Besides  all  this,  the  plan  was  badly  executed. 
The  experiment  was  given  up  in  two  of  the  villages,  Theningen 
and  Balingen,  in  1776;  in  Dietlingen  it  was  continued  until 
1792. 1 

In  France  their  chief  influence  was  through  Turgot.  As 
intendant  of  Limoges  (1761-1774)  he  was  active  and  successful 
in  tax  reforms,  the  abolition  of  feudal  restrictions,  and  education. 
During  his  few  years'  service  as  minister  of  finance,  he  attempted 
to  follow  the  same  principles  of  freedom  and  equality,  but  with 
less  complete  success.  Trade  in  wine  and  grain  between  the 
different  divisions  of  the  state  was  freed  from  restrictions. 
Foreign  commerce,  particularly  with  the  French  colonies,  was 
encouraged.  In  all  Turgot  removed  twenty-three  different 
burdens  which  oppressed  people,  commerce,  manufactures,  and 
agriculture.  With  what  unjust  implication,  then,  does  Kautz 
say  that  "  he  was  able  to  introduce  only  a  few  improvements 

1  Further  information  about  this  experiment  will  be  found  in  Roscher's 
Geschichte  der  Nat.-Oek.  in  DeutsMand,  §  no;  and  in  an  essay  by  A. 
Emminghaus,  published  in  the  Jahrbucher  fur  National  Okonomie  und  Sta- 
tistik,  Vol.  XIX.  (1872).  The  title  is  "  The  Physiocratic  Experiments  and 
Connections  of  Carl  Friedrich  of  Baden." 


THE  PHYSIOCRATS  155 

but  to  go  no  further." 1  He  struggled  valiantly  against  the  inter- 
ested hostility  of  clergy  and  nobility,  and  accomplished  much, 
but  was  overcome  before  the  fruits  of  his  reforms  were  realized. 

VIII.  Critical  Estimation  and  Summary.  —  Perhaps  the 
most  notable  single  characteristic  of  the  Physiocratic  eco- 
nomics is  its  negativism.  As  already  remarked,  Physioc- 
racy  might  be  denned,  with  some  measure  of  truth,  as  the  re- 
volt of  the  French  against  Mercantilism.  Its  weakness  and  its 
strength  are  alike  the  results  of  reaction.  Thus  wealth  in  the 
form  of  money  was  emphasized  by  the  Mercantilists,  while 
the  Physiocrats  placed  marked  emphasis  upon  "real"  wealth 
in  the  shape  of  raw  produce.  A  large  foreign  trade  with  a  favor- 
able balance  was  the  summum  bonum  of  the  Mercantilist ; 
the  typical  Physiocrat,  Turgot  being  rather  an  exception,  re- 
garded foreign  trade  with  indifference  or  as  a  necessary  evil, 
and  assailed  the  balance-of-trade  idea.  And  so  the  one  favored 
imports  of  raw  material ;  the  other  of  manufactures.  Whereas 
the  statesman  of  the  Mercantilist  school  sought  to  secure  these 
ends  by  continual  regulation,  freedom  of  trade  and  industry  was 
the  great  desideratum  of  Physiocracy.  In  a  word,  the  Physio- 
crats were  in  revolt  against  art,  artificial  wealth,  and  political 
artifices  for  wealth-getting;  hence  their  ideas  of  nature  and 
natural  wealth  and  natural  liberty. 

On  all  these  points  the  Physiocrats  carried  their  reaction,  to 
a  greater  or  less  extent,  too  far.  Commerce  and  manufactures 
are  and  were  important,  and  are  equally  productive,  in  the  true 
sense  of  the  word,  with  agriculture.  Absolute  freedom  of  indus- 
try and  trade  is  as  unattainable  in  theory  as  inexpedient  in 
practice.  In  short,  there  is  one  fundamental  error  in  their  eco- 
nomics, emphasized  by  two  more  errors  in  their  philosophy. 
Their  economics  was  vitiated  by  the  absence  of  a  correct  notion 
of  production :  they  lacked  the  idea  of  production  as  utility 
creation.  This  led  them,  for  example,  to  deny  "  productivity  " 
to  manufacture,  although  it  creates  form  utility.  Then,  their 
individualistic  philosophy,  with  its  negative  basis,  overlooked 

1  Die  geschichtliche  Enlwickelung  der  Nai.-Oek.  (Wien,  1860),  p.  357. 


156  ECONOMIC  THOUGHT 

the  necessity  for  social  action.  And  finally,  their  nature  philos- 
ophy made  them  absolutists  attempting  to  apply  their  ideas 
regardless  of  time  or  place. 

But  the  important  contributions  they  rendered  must  not  be 
forgotten.  For  one  thing,  they  did  a  valuable  work  by  destruc- 
tion. They  exposed  old  fallacies  and  departed  from  the  errors 
of  their  predecessors.  The  world  makes  progress  through  the 
realm  of  thought  like  a  ship  which  tacks  to  the  windward,  swing- 
ing now  to  one  side,  then  to  the  other,  of  the  straight  course,  — 
a  series  of  actions  and  reactions.  The  Physiocrats  threw  the 
tiller  over  and  sailed  away  on  a  new  tack,  and  one  necessary  to 
progress.  Their  more  positive  contributions  may  be  summed 
up  as  follows: — 

I.  They  put  economics  on  a  scientific  basis  by  separating  it 
from  other  sciences,  notably  jurisprudence,  and  applying  scien- 
tific methods. 

II.  They  made  important  contributions  to  the   theory  of 
taxation. 

III.  Their  analysis  of  capital  (Turgot),  though  rudimentary, 
pointed  toward  the  true  nature  of  that  factor. 

IV.  Their  emptiasis  of  the  surplus  or  net  product  was  notable, 
especially  in  connection  with  the  later  development  of  the  rent 
concept. 

V.  Their  emphasis  of  land  was  influential,  for  weal  or  woe,  in 
bringing  about  the  later  threefold  classification  of  the  factors  of 
production. 

The  Physiocratic  system  may  be  viewed  as  having  a  mission 
to  perform  in  the  development  of  the  economic  thought  of  the 
world,  and,  so  viewed,  it  must  be  confessed  that  its  very  errors 
adapted  it  so  much  the  better  to  perform  its  mission.  The  bold 
declaration  that  the  only  office  of  government  is  to  protect  life, 
liberty,  and  property,  and  the  easily  repeated  formula,  laissez 
faire,  laissez  passer,  were  destined  to  accomplish  much.  Any 
man  could  appreciate  the  doctrine  that  his  private  business  was 
no  concern  of  government.  It  was  natural  that  the  crisp, 
sweeping  exaggerations  of  the  Physiocratic  system  should  be 
very  effective. 


THE  PHYSIOCRATS  157 

It  was  well,  too,  that  the  importance  of  agriculture,  while  it 
is  not  the  sole  source  of  wealth,  should  be  emphasized.  Nor  is 
it  so  surprising  as  it  might  at  first  appear  that  the  Physiocrats 
regarded  the  rent  of  land  as  the  only  true  produit  net.  At 
the  time  when  Quesnay  wrote,  it  was  the  chief  source  whence 
additions  were  made  to  the  national  resources.  It  is  only  within 
a  comparatively  short  time  that  the  profits  of  capital  have  taken 
the  most  prominent  position  in  the  formation  of  new  capital. 
"  During  the  greater  part  of  the  world's  history  the  rent  of  land 
has  been  the  chief  source  of  saving.  A  good  deal  is  saved  from 
rent  in  England  now,  and  in  the  rest  of  the  world  probably  more 
is  saved  from  it  than  from  profits  on  capital."  l  There  is, 
moreover,  an  actual  difference  between  an  income  derived  from 
land  rents  and  one  derived  from  any  other  species  of  property  — 
a  difference  upon  which  Ricardo  founded  his  theory  of  rent,  and 
Mill  his  doctrine  of  land  taxation. 

But  reflection  showed  that  it  was  quite  misleading  to  designate 
those  classes  not  in  some  way  connected  with  agriculture  as 
barren  (sterile)  or  non-productive.  It  came  to  be  perceived 
that  there  is  a  produit  net,  a  surplus,  wherever  there  is  a 
saving,  and  that,  if  they  save  a  part  of  their  income,  merchants 
and  artisans  add  as  truly  to  the  wealth  of  the  country  as  the 
agricultural  laborer ;  for  they  must  have  rendered  an  equivalent 
for  their  income,  that  is  to  say,  have  produced  it.  A  system 
was  needed  which  should  include  and  elucidate  manufacturers 
and  commerce.  The  one-sidedness  of  the  Physiocrats  had  to 
give  way  to  make  room  for  the  broader  and  more  catholic  politi- 
cal economy  of  Adam  Smith. 

1  The  Economics  of  Industry,  Alfred  Marshall  and  Mary  Paley  Marshall 
(London,  1879),  P-  39- 


CHAPTER  X 

ADAM    SMITH    WITH    HIS    IMMEDIATE    PREDECESSORS 
AND    THE    REVOLUTION    IN    INDUSTRY 

THE  Scotchman,  Adam  Smith,  born  in  the  year  1723  at  the 
village  of  Kirkcaldy,  published  in  1776  the  book  commonly 
known  as  The  Wealth  of  Nations.1  By  this  book  he  won  a  fame 
greater  than  that  of  any  other  writer  on  political  economy  or 
allied  subjects.  Abundantly  criticized  and  with  its  originality 
not  unassailed,  his  work  still  stands  as  truly  epoch-making  in 
the  evolution  of  economic  thought,  while  its  maker  is  called 
the  Father  of  Political  Economy. 

Immediate  Predecessors  of  Adam  Smith.  —  Though  so  truly 
epoch-making,  Adam  Smith,  as  is  generally  the  case,  built  upon 
the  work  of  his  predecessors.  Nor  can  one  overlook  the  fore- 
runners in  a  study  of  the  master's  achievement.  Adam  Smith 
was  acquainted  with  the  writings  of  the  Mercantilists,  the  phi- 
losophers of  the  seventeenth  and  eighteenth  centuries,  and  the 
Physiocrats ;  and  he  stood  upon  their  shoulders.  The  names  of 
Petty,  North,  Child,  and  Steuart,  and  those  of  Locke,  Berkeley, 
Mandeville,  Hutcheson,  Hume,  Tucker,  and  Ferguson,  must  ever 

1  On  Adam  Smith,  his  life  and  work,  see:  Cannan  (editor),  Smith's 
Lectures  on  Justice,  Police,  Revenue,  and  Arms,  1896;  Feilbogen,  Smith  und 
Turgot;  Hasbach,  Die  allgemeinen  philosophischen  Grundlagen  der  von  F. 
Quesnay  und  Adam  Smith  begrundeten  politischen  Oekonomie,  1890,  and  Has- 
bach, Untersuchen  iiber  Adam  Smith,  1891 ;  Oncken,  Adam  Smith  und  Im. 
Kant;  Rae,  Life  of  Adam  Smith;  Zeyss,  Adam  Smith  und  der  Eigenutz. 
The  chapters  or  essays  on  Smith  in  Cannan's  Theories  of  Production  and 
Distribution,  Leslie's  Essays  in  Moral  and  Political  Philosophy,  Bagehot's 
Biographical  Studies,  and  Bonar's  Philosophy  and  Political  Economy  are 
valuable.  , 

158 


ADAM   SMITH  159 

be  remembered  in  this  connection.  Smith  also  refers  to  Can- 
tillon ;  and  a  work  by  Harris,  a  follower  of  Cantillon,  was  known 
to  him.  Dating  from  the  eighteenth  century,  too,  there  are 
many  books  and  pamphlets,  often  anonymous,  which  relate  to 
economic  subjects ;  but  inasmuch  as  there  is  no  evidence  that 
they  exerted  any  influence  on  the  course  of  economic  thought, 
it  does  not  seem  expedient  to  discuss  them  here.  While  remem- 
bering Smith's  great  debt  to  the  Physiocrats,  —  and  theirs  to 
the  Scotch  and  English  writers,  —  the  continuity  in  England's 
economic  thought  should  be  emphasized ;  and  Hutcheson,  Hume, 
Tucker,  and  Ferguson  may  be  named  as  the  chief  of  his  imme- 
diate predecessors.  These  men  come  near  to  forming  one  school 
with  Smith  as  their  master. 

It  is  highly  probable  that  Smith's  emphasis  of  self-interest  and 
accompanying  tendencies  were  stimulated,  if  not  originated,  by 
the  spirit  of  Mandeville's  celebrated  Fable  of  the  Bees.  Though 
he  at  first  expressed  himself  enigmatically,  it  appears  to  have 
been  Mandeville's  idea  that  on  the  multiplicity  of  wants  "  de- 
pended all  those  mutual  services  which  the  individual  members 
of  a  society  pay  to  each  other :  and  that  consequently,  the  greater 
variety  there  was  of  wants,  the  larger  number  of  individuals 
might  find  their  private  interest  in  laboring  for  the  good  of 
others,  and  united  together,  compose  one  body."  1  Mandeville, 
too,  clearly  expressed  the  idea  of  division  of  labor,  using  the 
production  of  watches  and  clocks  as  an  illustration,  and  he 
^was  perhaps  the  first  to  use  the  words  "  divided  "  and  "  divi- 
sion "  in  this  connection.2 

But  Hutcheson  exerted  a  deeper  and  more  comprehensive 
influence  over  Smith.  Hutcheson  was  a  teacher  of  Smith  at 
Glasgow  (1737-1740)  and  Smith  expressed  indebtedness  to  him. 
His  System  of  Moral  Philosophy  shows  that,  while  he  had  some 
Mercantilistic  ideas  concerning  balance  of  trade,  government 
regulation,  and  population,  he  foreshadowed  his  pupil's  work  at 

1  Edition  of  1724,  p.  465.     First  edition  about  1705;  second,  enlarged, 
in  1714. 

2  Edition  of  1729,  part  ii,  p.  335.     See  Cannan's  introduction  to  his  edi- 
tion of  Adam  Smith  and  note  on  page  5  of  Vol.  I. 


160  ECONOMIC  THOUGHT 

several  points.  For  one  thing  he  handed  down  to  Smith  many 
views  of  Pufendorf,  Grotius,  and  Locke ;  gave  him,  or  at  least 
strengthened,  his  optimistic  nature  philosophy ;  and  it  has  even 
been  argued  that  the  arrangement  of  the  Wealth  of  Nations  was 
affected  by  Hutcheson's  lectures.1  Furthermore  Smith  may  well 
have  gotten  from  him  certain  purely  economic  ideas,  notably  on 
division  of  labor,  value,  money,  and  taxation.  Thus  Hutcheson 
distinguished  utility  and  value,  saying  that  "  the  natural  ground 
of  all  value  or  price  is  some  sort  of  use,"  that  wealth  is  differen- 
tiated from  utility  by  labor,  and  that  limitation  of  supply  makes 
a  scarcity  value.2  Hutcheson  justified  interest  on  the  ground 
that  money  might  be  invested  in  things  "  naturally  productive." 
Doubtless  Hume  exercised  the  greatest  influence  on  the  general 
philosophy  of  Smith,  as  well  as  on  his  economic  opinions.  Dur- 
ing his  stay  at  Glasgow,  Smith  made  an  abstract  of  Hume's 
Treatise  of  Human  Nature  which  pleased  the  older  man  and 
was  the  beginning  of  a  lasting  friendship.  Hume  was  an  essay- 
ist, writing  in  a  philosophical  spirit,  but  working  out  no  complete 
economic  system.  If  he  had  written  a  systematic  treatise  in 
1752,  when  his  essays  appeared,  the  Wealth  of  Nations  in  all 
probability  would  not  have  occupied  the  unique  position  it  now 
holds.  The  chief  characteristics  of  Hume's  economic  thought 
are  the  prominence  given  to  labor,  the  attention  given  to  changes 
or  transitions,  evidences  of  historical  spirit,  and  the  inter- 
relation of  economic  and  other  social  facts  and  forces.  Though 
he  shows  traces  of  Mercantilism  he  had  a  good  understanding  of 
foreign  trade.  "  Not  only  as  a  man  but  as  a  British  subject  I 
pray  for  the  flourishing  commerce  of  Germany,  Spain,  Italy  and 
even  France  itself."  Everything  that  is  useful  to  man  springs 
from  the  ground;  but  artisans  are  necessary  to  work  up  most 
things  and  in  "  the  stock  of  labor  .  .  .  consists  all  real  power 
and  riches." 3  Hume  holds  that  everything  in  the  world  is 
purchased  by  labor,  and  that  our  passions  are  the  only  cause  of 
labor.4  Money  is  nothing  but  the  representative  of  labor  and 
commodities  and  for  any  one  country  its  greater  or  less  abun- 

1  See  W.  R.  Scott's  Francis  Hutcheson.  3  Of  Money. 

2  System,  Vol.  II,  pp.  53  ff.  4  Of  Commerce. 


ADAM  SMITH  l6l 

dance  is  immaterial ;  but  the  increase  in  the  supply  of  money 
may  benefit  industry  during  the  interval  between  acquisition 
and  resulting  rise  in  prices.  Interest  depends  on  the  profits  of 
industry  and  the  demand  and  supply  of  loans.1 

Josiah  Tucker  (1712-1799) 2  was  dean  of  Gloucester.  Be- 
tween 1750  and  1776  he  wrote  several  essays  on  commerce  and 
taxation,3  and  one  of  his  writings  was  translated  by  Turgot.4 
He  too  laid  emphasis  on  the 'significance  of  labor.  He  believed 
in  the  advantages  of  a  large  population  and  favored  a  tax  on  celi- 
bacy, and  has  been  called  the  true  forerunner  of  the  Manchester 
School."  6  Tucker's  free  trade  policy  was  based  on  the  idea  of  a 
harmony  of  interests.  Self-interest  was  made  by  him  the  chief 
motive,  and  this,  he  thought,  if  given  free  play,  would  coincide 
with  public  interest  in  most  cases. 

It  may  be  said  that  Hume  and  Tucker  inaugurated  cosmo- 
politanism in  commercial  policy. 

Adam  Ferguson  (1723-1818)  did  not  separate  economics  from 
politics,  but  in  his  lectures  and  writings 6  dealt  with  economic 
topics,  and,  as  a  contemporary  and  friend  of  Smith's,  he  must 
have  had  some  influence.  His  maxims  of  taxation,  though  not 
the  same,  may  have  influenced  Smith's  famous  canons.  His 
treatment  was  ethical.  He  had  some  idea  of  the  principle  of 
relativity. 

On  the  point  of  the  theory  of  value  and  utility,  Harris  in  his 
work  On  Coins  (1757)  was  influential  in  shaping  Smith's  thought ; 
for  he  wrote :  "  Things  in  general  are  valued  not  according  to 
their  real  uses  in  supplying  the  necessities  of  men ;  but  rather  in 

1  Of  Interest. 

2  See  W.  E.  Clark,  Josiah  Tucker,  Columbia  University  Studies  XIX, 
No.  i. 

3  Brief  Essay  on  the  Advantages  and  Disadvantages  which  respectively  attend 
France  and  England  with  regard  to  Trade  (1748);  Elements  of  Commerce 
(1752);  and  others. 

4  The  Expediency  of  a  Law  for  the  Naturalization  of  Foreign  Protestants, 
translated  as  Questions  importantes  sur  le  Commerce,  1755. 

5  For  Manchester  School,  see  below,  p.  185. 

6  Essay  on  the  History  of  Civil  Society  (1767);  Institutes  of  Moral  Phi- 
losophy (1769). 


1 62  ECONOMIC  THOUGHT 

proportion  to  the  land,  labor,  and  skill  that  are  requisite  to  pro- 
duce them ; "  and  he  contrasted  water  and  diamonds  to  illus- 
trate the  point  (p.  5). 

These  men,  then,  broke  the  way  for  the  development  of  politi- 
cal economy  as  a  science,  and  more  or  less  markedly  taught 
that  labor  is  the  source  of  wealth  and  advocated  industrial  or 
"  natural  "  liberty. 

Smith's  Life  and  Relations  with  the  Physiocrats.1  —  At  the 
age  of  fourteen  Smith  went  to  Glasgow,  where,  as  already  indi- 
cated, the  philosopher  Hutcheson  profoundly  affected  him. 
Hutcheson  was  lecturing  systematically  on  economic  subjects 
under  the  branch  of  his  philosophy  which  he  called  "  Natural 
Jurisprudence."  Smith  then  went  to  Oxford  on  a  scholarship, 
where  he  studied  the  classics.  Between  1748  and  1751  he 
lectured  on  rhetoric  and  belles-lettres  at  Edinburgh;  after 
which  he  became  professor  at  Glasgow,  —  first  of  logic,  then  of 
moral  philosophy.  "  In  the  last  of  these  lectures  he  examined 
those  political  regulations  which  are  founded,  not  upon  the 
principle  of  justice,  but  that  of  expediency,  and  which  are  cal- 
culated to  increase  the  riches,  the  power,  and  the  property  of  a 
state.  Under  this  view  he  considered  the  political  institutions 
relating  to  commerce,  to  finances,  to  ecclesiastical  and  military 
establishments."  2  We  know  that  in  1754  while  at  Glasgow  he 
discussed  the  effects  of  a  bounty  on  the  export  of  corn,  talking 
much  with  merchants  and  convincing  many  of  the  advantage 
of  free  trade. 

In  1759  his  Theory  of  Moral  Sentiments  appeared. 

Five  years  later  we  find  Smith  traveling  in  Switzerland  and 
France.  He  met  Diderot,  D'Alembert,  Quesnay,  Turgot,  and 
others.  Conversing  often  with  Turgot  on  economic  topics,  it  is 
natural  that  both  men  were  influenced.  Turgot  was  engaged  on 
his  Reflexions  and  Smith  on  his  Wealth  of  Nations.  Say's  opin- 
ion that  Turgot  owes  much  of  his  philosophy,  Smith  much  of 
his  economics,  to  this  intercourse,  seems  reasonable.3  It  seems 

1  Rae,  Life  of  Adam  Smith. 

*  Words  of  Millar,  a  student  of  Smith's,  in  Stewart's  Works,  Vol.  X,  p.  12. 

*  Leon  Say,  Turgot,  p.  33. 


ADAM   SMITH  163 

more  reasonable,  however,  to  minimize  the  contributions  made 
by  these  men  to  each  other's  development  and  to  consider  them 
both  as  affected  by  common  environmental  forces. 

"  The  three  same  fundamental  conceptions,"  saysCliffe  Leslie,1 
"  derived  from  the  three  same  sources  —  from  Graeco-Roman 
speculation,  from  Christian  theology,  and  from  the  revolt  of  the 
age  against  arbitrary  interference  with  private  industry  and  un- 
eqtial  imposts  on  the  fruits  of  labor  —  formed  the  groundwork 
of  the  political  economy  of  Adam  Smith  and  the  Physiocrats." 
These  "  fundamental  conceptions  "  were,  respectively,  that  of 
natural  rights,  that  of  a  beneficent  Providence,  and  lastly  the 
idea  of  laisser  faire  derived  from  the  reaction  against  govern- 
ment interference.  None  of  them  can  be  said  to  be  the  inven- 
tion or  the  property  of  any  man  or  school.  In  any  case  all  of 
them  can  be  found  in  the  writings  of  Hutcheson,  Hume,  and 
Tucker. 

From  among  these  fundamentals  of  Leslie's,  a  fourth  might  be 
distinguished,  namely,  the  principle  of  self-interest  as  the  funda- 
mental force  in  society.  In  this  connection  the  appearance  of 
Helvetius'  work  de  VEsprit  (1758)  deserves  comment.2  His 
teaching  that  self-love  is  life  and  power ;  unselfish  benevolence, 
nothing,  produced  a  wonderful  sensation  in  France  and  else- 
where. It  may  have  been  instrumental  in  causing  Smith  to 
shift  from  sympathy  to  self-interest  as  the  chief  motive  in  life.3 
His  predecessor  in  England,  however,  and  especially  Mandeville, 
may  be  regarded  as  probably  having  the  most  immediate  in- 
fluence here. 

With  the  continental  ferment  of  a  sensualistic  nature  philos- 
ophy working  upon  the  similar  ideas  of  his  own  and  his  prede- 
cessors, Adam  Smith  returned  to  England  in  1766,  and  ten  years 
later  published  his  book  The  Wealth  of  Nations. 

Never  was  time  riper  for  a  comprehensive  book  !    Everywhere 

1  "  The  Political  Economy  of  Adam  Smith,"  Fortnightly  Review,  1870. 
Republished  in  his  Essays. 

*  Cf.  Kuno  Fischer,  Francis  Bacon  u.  Seine  Nachfolger,  p.  687. 

1  Knies,  Die  politische  Okonomie  vom  Standpunkt  der  geschichtliche  Me- 
thode,  p.  150. 


164  ECONOMIC  THOUGHT 

the  old  order  was  shaken;  everywhere  new  ground  had  been 
broken ;  but  nowhere  had  the  fruit  appeared.  Tracts  and  essays 
had  appeared  in  England  and  tableaux  and  tomes  in  France ;  but 
all  lacked  either  system  or  comprehensiveness,  or  were  marred 
by  Mercantilistic  taints  or  reactionary  errors.  Revolutions  in 
industry,  in  philosophy,  in  politics,  were  in  the  air.  What 
wonder  that  men  hailed  with  extravagant  praise  an  analysis  and 
explanation  of  the  new  order! 

"  An  Inquiry  into  the  Nature  and  Causes  of  the  Wealth  of  Na- 
tions "  was  the  full  title  of  the  book ;  and  this  title  was  considered 
by  Smith  to  be  an  adequate  definition  of  the  scope  of  political 
economy.1  So  far  as  the  book  has  a  plan  it  appears  to  be  as 
follows :  beginning  with  the  importance  of  labor  as  the  source 
of  the  annual  wealth  of  a  nation,  Smith  discusses  division  of 
labor  as  the  means  for  increasing  the  productiveness  of  labor 
and  hence  the  nation's  wealth.  Division  of  labor  necessitates 
exchange,  and  this  is  the  next  topic.  This  leads  up  to  money 
as  the  medium  of  exchange,  and  to  value.  The  discussion  of 
price  follows,  and  then  the  components  of__price :  wages,  profits, 
and  rent  —  according  to  Smith.  Finally  the  criticism  of  Mer- 
cantilism and  Physiocracy  follows ;  and  the  last  book  deals  with 
public  finance. 

In  his  conception  of  the  "  annual  wealth  "  and  "  annual 
labor  "  of  a  nation  Smith  was  undoubtedly  influenced  by  the 
Physiocrats. 

The  Importance  of  Labor  and  Division  of  Labor.  —  The  Phys- 
iocrats had  made  land  or  the  bounty  of  nature  the  center  of  their 
system.  In  the  sense  in  which  they  used  the  word,  land  alone 
was  ''productive."  Certain  ones  among  the  Mercantilists,2 
however,  spoke  of  labor  as  the  active  principle  or  father  of  wealth, 
though  attaching  most  importance  to  mercantile  and  maritime 
pursuits.  Adam  Smith  makes  much  of  labor.  The  first  words 
in  his  book  are,  "  The  annual  labor  of  every  nation  is  the  fund 
which  originally  supplies  it  with  all  the  necessaries  and  con- 
veniences of  life ; "  and,  as  will  be  seen  later,  he  makes  labor 
both  cause  and  measure  of  value. 

1  See  Introduction  to  Bk.  IV  (Carman's  ed.,  p.  395).        *  Above,  p.  103. 


ADAM   SMITH  165 

It  must  not  be  inferred  that  Smith  means  all  human  exertion 
which  adds  utility ;  he  limits  his  emphasis  on  labor  to  "  pro- 
ductive labor."  This  reminds  one  of  Physiocratic  distinctions. 
But  there  is  this  difference :  the  Physiocrats  made  productivity 
equal  the  creation  of  a  surplus  over  costs ; *  by  Smith  productiv- 
ity was  extended  to  include  any  addition  to  exchange  value, 
the  produce  of  labor  being  "  the  value  which  it  adds  to  the  ma- 
terials upon  which  it  is  bestowed."  2  But  exchange  value  he 
confined  to  vendible  commodities.  Thus  Smith  regarded  me- 
nial servants,  public  officials,  and  professional  men  as  unpro- 
ductive; their  work  perished  on  the  instant  of  production.3 
This  is  very  like  Child's  opinion.4 

Smith's  treatment  of  the  advantages  of  division  of  labor  has 
long  been  deemed  a  classic.  He  did  not  originate  the  idea,  for 
traces  of  it  have  been  found  from  the  Greeks  on ;  but  he  so  en- 
riched it  that  ever  since  the  appearance  of  the  Wealth  of  Nations 
it  has  had  a  new  importance  in  economics.  Smith  makes  an 
innate  "  propensity  to  truck  and  barter  "  the  cause  of  division  of 
labor  among  men.  This  is  hardly  rational  enough  for  the  pres- 
ent day ;  but  a  more  satisfactory  explanation  is  suggested  in  its 
"  advantage  "  coming  from  an  "  increase  of  the  productive  powers 
of  labor,"  special  adaptations  among  men  giving  rise  to  this 
advantage.  The  occasion  for  such  a  division  is,  of  course,  the 
power  of  exchange.  Division  of  labor,  he  points  out,  is  limited 
by  the  extent  of  the  market.  As  to  its  advantages,  Smith  says : 
"  The  greatest  improvement  in  the  productive  powers  of  labour, 
and  the  greater  part  of  the  skill,  dexterity,  and  judgment  with 
which  it  is  anywhere  directed,  or  applied,  seem  to  have  been  the 
effects  of  the  division  of  labour."  5  Pin  making,  for  example,  is 
a  peculiar  trade  which  is  "  divided  into  a  number  of  branches  of 
which  the  greater  part  are  likewise  peculiar  trades."  As  a  result 
each  man  produces  at  least  240  times  as  many  pins  as  if  he 

1  And  the  Physiocrats  did  not  logically  impute  "productivity"  to  labor, 
but  to  land. 

•  Wealth  of  Nations,  Bk.  I,  Chap.  VIII  (Cannan's  ed.,  p.  67). 

•  Ibid.  Bk.  II,  Chap.  Ill  (Cannan's  ed.,  p.  313). 

•  Above,  p.  104.  B  Bk.  I,  Chap.  I  (Cannan's  ed.,  p.  5). 


1 66  ECONOMIC  THOUGHT 

worked  alone.  The  advantages  are  analyzed  as  being  due  to 
three  circumstances :  the  increase  of  dexterity  in  the  individual 
workman ;  the  saving  of  time  otherwise  lost  in  passing  from  one 
process  to  another ;  and  "  to  the  invention  of  a  great  number  of 
machines  which  facilitate  and  abridge  labour." 

Value.  —  Smith  begins  his  discussion  of  value  by  distinguish- 
ing value  in  use  from  value  in  exchange :  the  former  is  similar 
to  the  utility  l  of  recent  economic  analysis,  such  as  is  possessed 
by  water  and  air ;  the  latter  is  the  power  of  purchasing  goods, 
of  which  diamonds  afford  an  illustration.  "  The  things  which 
have  the  greatest  value  in  use  have  frequently  little  or  no  value 
in  exchange ;  and,  on  the  contrary,  those  which  have  the  greatest 
value  in  exchange  have  frequently  little  or  no  value  in  use."  In 
this  distinction  Smith  is  in  accord  with  the  idea  of  valeur  usuelle 
and  valeur  venale  as  held  by  Quesnay  and  the  Physiocrats.  It 
will  be  noted  that  this  treatment  limits  "use"  in  a  sense  not 
now  observed  by  economists,  involving  as  it  does  an  ethical  idea. 
John  Stuart  Mill  later  called  Smith  to  account  for  denying 
utility  to  anything  which  satisfies  human  wants,  as  diamonds 
undoubtedly  do.  Smith  and  his  followers  have  also  been 
criticised  with  some  justice  for  failing  to  distinguish  the  con- 
cept of  utility  from  "  value  in  use."  2  Doubtless  the  coupling 
of  "value"  with  "use"  in  a  single  term  tended  to  conceal  the 
significance  of  bare  utility  and  to  prevent  the  separation  of  the 
objective  value  in  use  from  the  subjective. 

Smith,  however,  is  concerned  with  exchange  value  alone, 
which  he  defines  as  the  "  power  of  purchasing  other  goods  " 
which  a  commodity  possesses.  His  conception  of  value,  then,  is 
entirely  objective.  He  keeps  value  in  use  and  value  in  exchange 
unrelated  and  apart. 

"  The  real  price  of  everything,"  he  says,  "  what  every  thing 
really  costs  to  the  man  who  wants  to  acquire  it,  is  the  toil  and 
trouble  of  acquiring  it."  3  Accordingly  a  cost  theory  is  the 

1  Not  marginal  utility,  but  general  capacity  to  satisfy  wants  regardless 
of  supply,  —  total  utility. 

1  E.g.  Brentano,  Die  Entwickdung  der  Werthlehre,  1908,  pp.  42-43. 
8  Bk.  I,  Chap.  V  (Caiman's  ed.,  p.  32). 


ADAM   SMITH  167 

one  which  prevails.  As  suggested  in  the  preceding  quotations, 
cost  is  thought  of  as  labor  expenditure,  —  the  cost  of  toil  and 
trouble.  "  Labour  was  the  first  price,  the  original  purchase 
money  that  was  paid  for  all  things.  It  was  ...  by  labour, 
that  all  the  wealth  of  the  world  was  originally  purchased." 

Next  it  is  to  be  observed  that  Smith  distinguishes  between 
the  causes  of  value  in  early  society  and  those  in  force  after  capi- 
tal becomes  important.  In  early  society  "  the  proportion  be- 
tween the  quantities  of  labor  necessary  for  acquiring  different 
objects  seems  to  be  the  only  circumstance  which  can  afford  any 
rule  for  exchanging  them  for  one  another."  l  But  after  the  "  ac- 
cumulation of  stock  "  an  element  of  profits  must  be  allowed  for : 
"  Neither  is  the  quantity  of  labour  commonly  employed  in  acquir- 
ing or  producing  any  commodity,  the  only  circumstance  which 
can  regulate  the  quantity  which  it  ought  commonly  to  purchase. 
...  An  additional  quantity,  it  is  evident,  must  be  due  for  the 
profits  of  the  stock."  2  Originally,  then,  labor  cost  regulated 
value ;  but  when  capital  came  to  be  used,  profits  must  needs  be 
allowed  for.  At  other  points  Smith  resolves  price  into  wages, 
profits,  and  rent.  In  civilized  countries  land  and  capital  con- 
tribute to  the  "exchangeable  value"  of  commodities,  conse- 
quently the  total  value  of  the  nation's  products  will  command 
much  more  labor  than  entered  into  its  production.3 

But  while  pursuing  this  thread  of  thought  the  reader  of  the 
Wealth  of  Nations  is  struck  with  another  use  of  the  labor  element 
in  regard  to  value.  For  example,  it  is  stated  that  the  value  in 
exchange  of  any  commodity  "is  equal  to  the  quantity  of  labour 
which  it  enables  him  [the  owner]  to  purchase  or  command. 
Labour,  therefore,  is  the  real  measure  of  the  exchangeable  value 
)f  all  commodities."  4  Here  the  idea  obviously  is  that  labor  is 
the  measure  of  value :  what  a  thing  is  worth  may  be  learned  by 
finding  out  how  much  labor  it  will  "  command." 

At  several  points  the  two  ideas,  labor  as  cause  or  determinant 

1  Bk.  I,  Chap.  VI  (Cannan's  ed.,  p.  49). 

1  Ibid.  "Of  the  Component  Parts  of  the  Price  of  Commodities." 

1  Bk.  I,  Chap.  VI  (Cannan's  ed.,  p.  56). 

4  Bk.  I,  Chap.  V  (Cannan's  ed.,  p.  32). 


1 68  ECONOMIC  THOUGHT 

vs.  labor  as  measure,  are  brought  into  juxtaposition.  At  the 
very  outset  the  twofold  aspect  is  suggested  in  the  statement 
that  the  fund  of  national  wealth  consists  "  either  in  [i]  the  im- 
mediate produce  of  that  labor,  or  in  [2]  what  is  purchased  with 
that  produce  from  other  nations."  l  Then  the  distinction  ap- 
pears clearly  in  the  following  sentence :  "...  [i]  the  quantity 
of  labour  commonly  employed  in  acquiring  or  producing  any 
commodity,  is  the  only  circumstance  which  can  regulate  [2]  the 
quantity  of  labour  which  it  ought  commonly  to  purchase,  com- 
mand, or  exchange  for."  ; 

In  short,  in  order  to  understand  Smith's  theory  of  value  it 
seems  absolutely  necessary  to  keep  in  mind  the  distinction  be- 
tween cause  and  determinant,  on  the  one  hand,  and  measure,  on 
the  other.  On  the  one  hand,  labor  is  spoken  of  as  an  amount  of 
toil  or  trouble  of  acquirement,  as  a  quantity  employed  in  pro- 
duction, "  what  it  really  costs  the  person  who  brings  it  to 
market,"  etc.  These  things  "  regulate "  value,  while  the 
quantity  of  labor  a  thing  exchanges  for  is  "  the  real  measure  " 
of  exchange  value.  To  what  extent  this  distinction  was  con- 
sciously made  by  Adam  Smith  cannot  be  said,  but  it  seems  more 
than  mere  chance  that  the  usage  is  so  consistent  on  the  lines 
suggested. 

It  is  perhaps  worthy  of  note  that  the  concept  of  labor  as  the 
measure  of  value  becomes  more  and  more  prominent  as  Smith 
develops  his  idea  of  an  advanced  state  of  society  in  which  labor 
is  not  the  whole  purchase  price  of  goods. 

Of  the  two  ways  of  looking  at  the  problem,  the  labor-cost- 
determinant  is  the  more  fundamental.  It  is  the  amount  of  the 
force  which  so  limits  its  supply  as  to  give  to  a  commodity  its 
purchasing  power.  This  being  so,  how  are  we  to  express  the 
amount  of  purchasing  power  or  value  in  the  commodity?  As 
labor  ceases  to  be  the  sole  cost  this  question  becomes  of  increased 
significance.  Money  and  corn  so  vary  in  this  power  to  com- 
mand other  commodities  that  they  are  hardly  suitable,  so  Smith 
resorts  to  labor  again,  this  time  as  a  measure.  Under  ordinary 

1  Introduction  (Cannan's  ed.,  p.  i). 

1  Bk.  I,  Chap.  VI  (Cannan's  ed.,  pp.  49-50). 


ADAM   SMITH  169 

conditions  the  laborer  "  must  always  lay  down  the  same  portion 
of  his  ease,  his  liberty,  and  his  happiness."  He  may  receive 
more  or  less  goods,  but  the  price  he  pays  in  labor  is  the  same : 
their  value  varies,  not  that  of  the  labor  which  purchases  them.1 
But,  that  he  had  it  in  mind  that  what  determined  the  amount 
of  labor  a  thing  would  command  was  the  amount  of  labor  (and 
capital,  after  the  accumulation  of  stock)  it  contained,  is  quite 
clear.  Before  the  accumulation  of  stock,  etc.,  if  division  of  labor 
had  been  carried  out,  goods  "  would  have  been  produced  by  a 
smaller  quantity  of  labour;  and  as  the  commodities  produced 
by  equal  quantities  of  labour  would  naturally  in  this  state  of 
things  be  exchanged  for  one  another,  they  would  have  been 
purchased  likewise  with  the  produce  of  a  smaller  quantity."  2 
Or,  speaking  of  precious  metals,  he  remarks,  "As  it  costs  less 
[i]  labour  to  bring  those  metals  from  the  mine  to  the  market, 
so  when  they  were  brought  thither  they  could  [2]  purchase  or 
command  less  labour."  3 

Such  being  the  basis  for  his  cost  theory  of  objective  exchange 
value,  the  question  as  to  its  application  and  serviceableness 
arises.  Smith  himself  states  that  values  are  not  adjusted  by  any 
accurate  measure,  but  according  to  a  rough  approximation  to 
equality,  through  the  higgling  of  the  market.  His  idea  is 
that  the  average  labor  cost  may  be  used.  Taking  the  laborer  of 
ordinary  or  average  skill,  strength,  and  health,  a  day's  work  will 
always  involve  the  same  amount  of  disutility,  —  the  same  sacri- 
fice of  ease,  liberty,  and  happiness.  In  Chapter  VI  he  makes 
allowance  for  the  difference  in  hardship,  skill,  etc.,  characteristic 
of  different  occupations ;  and,  while  steering  perilously  near  to 
introducing  a  discordant  utility  element,  he  concludes  that  fre- 
quently a  compensation  for  skill  is  equivalent  to  one  for  time  and 
labor  spent  in  acquiring  skill. 

Smith  did  not  have  the  idea  of  marginal  costs  to  fall  back  upon. 
•  Instead  he  uses  the  device  of  an  average  man  under  average  cir- 
cumstances. If  this  use  of  the  average  man  is  considered,  and  it 

1  Bk.  I,  Chap.  V  (Cannan's  ed.,  p.  35). 
1  Bk.  I,  Chap.  VIII  (Cannan's  ed.,  p.  66). 
5  Bk.  I,  Chap.  V  (Cannan's  ed.,  p.  34). 


1 70  ECONOMIC  THOUGHT 

is  remembered,  furthermore,  that  Smith  seeks  to  determine  value 
only  indirectly  and  through  cost,  his  reasoning  does  not  seem  to 
be  open  to  criticism  on  the  ground  of  a  lack  of  homogeneity  in 
environmental  conditions,  or  in  quality  of  labor,  in  so  far  as  a 
given  occupation  is  concerned.1  The  conception  of  an  average 
labor  cost  under  average  conditions  for  an  average  workman  of  a 
given  grade  does  not  appear  illogical. 

Nor  is  he  inconsistent  in  his  use  of  corn,  money,  and  labor  as 

measures;  for  he  takes  up  the  two  former  as  merely  the  more 

expedient,  basing  their  validity  upon  their  ability  to  command 

labor. 

Holding  the  idea  he  did  of  value  as  an  objective  exchange  re- 

;  lation,  however,  his  quest  of  a  long-time  or  absolute  standard  is 

•  inconsistent. 

It  remains  to  be  noted  that  Smith  made  the  distinction  be- 
tween natural  price  and  market  price.  When  the  price  just 
covered  the  ordinary  rate  of  rent,  wages,  and  profits  expended  in 
preparing  and  marketing  the  commodity,  it  sold  at  its  "  natu- 
ral price."  The  market  price  might  be  above  or  below  this, 
depending  upon  the  supply  actually  on  the  market  and  the  "  effec- 
tual demand  "  —  the  demand  of  those  who  were  willing  to  pay 
the  natural  price.2  "  The  natural  price  itself  varies  with  the 
natural  rate  of  each  of  its  component  parts,  of  wages,  profit, 
and  rent ;  and  in  every  society  this  rate  varies  according  to  their 
circumstances,  according  to  their  riches  or  poverty,  their  ad- 
vancing, stationary,  or  declining  condition."  3  Smith  also  sug- 
gests the  importance  of  demand  as  determining  supply. 

The  Classes  of  Society  and  their  Interests.  —  According  to 
Smith  there  are  three  great  original  constituent  orders  of  civi- 
lized society :  they  consist  of  those  who  live  by  rent,  those  who 
live  by  wages,  and  those  who  live  by  profit.  Others  derive  their 
revenue  from  these.  The  interests  of  these  classes  may  diverge 
one  from  the  other,  and  from  the  general  interest  of  society. 

1  But  cf.  Davenport,  Value  and  Distribution,  p.  9.     See  below,  p.  387, 
where  Marx  takes  up  this  same  problem. 

2  Bk.  I,  Chap.  VII  (Caiman's  ed.,  p.  58). 
*  Ibid.  (Cannan's  ed.,  p.  65). 


ADAM   SMITH  171 

That  of  the  rent-takers,  however,  is  connected  inseparably  with 
the  social  interest,  and  might  safely  be  taken  as  a  guide  for  legis- 
lation.1 But  as  their  revenue  requires  neither  labor  nor  care 
they  are  indolent,  unsuited  for  public  office.  Likewise  the  in- 
terests of  the  wage  earners  are  strictly  connected  with  those  of 
society,  but  so  ignorant  are  they  that  they  cannot  understand 
their  own  or  society's  needs,  and  their  voice  has  small  weight. 
The  third  order  of  men,  those  who  live  by  profit,  have  interests 
quite  at  variance  with  those  of  society.  They  necessarily  desire 
to  narrow  competition.  They  are  acute,  but  selfish,  and  com- 
mercial legislation  proposed  by  them  should  be  regarded  with 
suspicion.2 

The  determination  of  the  shares  of  these  orders,  then,  begin- 
ning with  wages,  is  the  problem  to  be  considered  next. 

Wages.  —  As  in  many  other  instances,  so  in  his  statements  on 
wages,  Smith  is  not  clear-cut.  In  the  Wealth  of  Nations  may  be 
found  traces  of  virtually  every  wage  theory  ever  developed.  In 
general,  however,  his  doctrine  was  that  wages  depend  on  labor 
supply  and  demand.  On  the  one  hand  the  supply  is  limited  and 
a  minimum  set  by  the  price  of  the  necessaries  and  conveniences 
of  life,  or,  as  he  puts  it  in  another  place,  by  the  "  ordinary  or  aver- 
age price  of  provisions."  3  On  the  other  hand  is  the  demand  for 
labor,  which  depends  on  the  surplus  stock  of  the  nation  or  the 
national  wealth.  The  increase  in  this  stock  is  the  important 
thing.  If  there  be  an  advancing  state  of  society,  the  demand 
is  great  and  wages  are  high.4  If  there  is  a  relative  increase  in 
any  trade,  there  is  a  rise  of  wages  in  it.6 

By  "  necessaries  "  Smith  understood  "  whatever  the  custom  of 

1  This  was  not  consciously  so  with  the  landlord.  "It  is  to  no  purpose  that 
the  proud  and  unfeeling  landlord  views  his  extensive  fields,  and,  without  a 
thought  for  the  wants  of  his  brethren,  in  imagination  consumes,  himself, 
the  whole  harvest  that  grows  upon  them."  (Theory  of  Moral  Sentiments, 
pp.  348  ff.,  ist  ed.) 

*  Wealth  of   Nations,  Bk.  I,  Chap.  XI,  conclusion   (Cannan's  ed.,  p. 
249). 

3  Bk.  V,  Chap.  II,  art.  Hi  (Cannan's  ed.,  p.  348). 

4  Bk.  I,  Chap.  VIII  (Cannan's  ed.,  p.  71,  et  passim). 

*  Bk.  I,  Chap.  X,  part  ii,  3d  argument  (Cannan's  ed.,  p.  136). 


172  ECONOMIC  THOUGHT 

the  country  renders  it  indecent  for  creditable  people,  even  of  the 
lowest  order,  to  be  without."  l 

While  he  argued  that  in  Great  Britain  wages  were  consider- 
ably above  the  subsistence  level,  yet  he  held  that  in  the  sta- 
tionary state  of  society  laborers  would  "  naturally  multiply  be- 
yond their  employment,"  and  wages  soon  be  reduced  to  the 
lowest  level  "  consistent  with  common  humanity."2 

Indeed,  forebodings  of  Malthusianism  appear  more  than 
once.3  Moreover  certain  passages  plainly  suggest  the  wages- 
fund  idea.  "  The  demand  for  those  who  live  by  wages,  it  is  evi- 
dent, cannot  increase  but  in  proportion  to  the  increase  of  the 

A*  funds  which  are  destined  for  the  payment  of  wages,"  these  funds 
being  the  employers'  revenue  surplus  over  their  own  subsistence 
and  any  "  stock  "  not  necessary  for  their  own  employment.4 
And  again  he  speaks  of  "  the  funds  destined  for  the  payment 
of  wages." 

There  can  be  no  doubt  that  Adam  Smith  was  very  well  dis- 
posed toward  labor.  As  forming  the  greater  part  of  society, 
what  benefited  it  could  hardly  harm  the  whole.  No  society 
could  be  truly  flourishing  and  happy  with  its  laboring  classes 
poor  and  miserable.  "  It  is  but  equity,  besides,  that  they  who 
feed,  cloath,  and  lodge  the  whole  body  of  the  people,  should 

/  have  such  a  share  of  the  produce  of  their  own  labour  as  to  be 
themselves  tolerably  well  fed,  cloathed,  and  lodged."  5 

As  one  turns  the  pages  of  the  Wealth  of  Nations  and  observes 
its  lack  of  system,  it  is  easy  to  see  how  the  Socialists  have  drawn 

1  Bk.  V,  Chap.  II,  Pt.  ii,  Art.  4  (Cannan's  ed.,  p.  354). 

2  The  pessimistic  effect  of  such  passages  is  evidenced  by  the  following 
quotation  from  Weyland's  Population  and  Production,  1816.     "...  it  fol- 
lows that  it  is  also  our  duty  to  use  every  exertion  for  the  purpose  of  pre- 
venting a  country  from  resting  in  the  stationary  condition,  which  Dr.  Smith 
designates  as  'hard'  and  'dull,'  or  from  sinking  into  the  declining  state, 
which  is  described  as  'miserable'  and  '  melancholy'"  (p.  5). 

'"Every  species  of  animals  naturally  multiplies  in  proportion  to  the 
means  of  their  subsistence,  and  no  species  can  ever  multiply  beyond  it." 
Bk.  I,  Chap.  VIII  (Cannan's  ed.,  p.  81). 

4  Ibid.  (Cannan's  ed.,  pp.  70-71). 

*  Ibid.  (Cannan's  ed.,  p.  80). 


ADAM   SMITH  173 

inspiration  from  its  words.  To  begin  with,  there  is  a  deductive, 
na'ive  account  of  early  society.  In  this  stage,  or  "  originally," 
as  Smith  generally  says,  everything  is  bought  with  labor,  and 
everything  belongs  to  the  laborer.  Then  comes  appropriation 
of  land,  —  and  we  are  reminded  that  the  landowner  loves  to 
reap  where  he  has  not  sown.  And,  thirdly,  accumulation  of 
stock  follows.  At  points  his  words  suggest  that  these  agencies 
take  a  part  of  what  labor  really  produces.  The  last  quotation, 
for  example,  does  so.  But  it  is  only  a  superficial  reading  that 
allows  such  a  conclusion.  For  Smith  clearly  states  that  capital 
is  necessary  to  manufacturers,  and  trade  to  the  convenience  of 
society,  implying  its  productivity.1  And  no  one  can  well  read 
the  introduction  to  Book  II  and  say  that  Smith  denied  either 
productivity  or  importance  to  capital,  or  that  he  desired  a 
return  to  his  original  state. 

Profits  and  Interest.  —  "  The  increase  of  stock,  which  raises 
wages,  tends  to  lower  profit.  When  the  stocks  of  many  rich  mer- 
chants are  turned  into  the  same  trade,  their  mutual  competi- 
tion naturally  tends  to  lower  its  profit ;  .  .  ."  2  These  are  the 
words  with  which  Adam  Smith  explains  the  forces  which  de- 
termine profits.  "  They  are  regulated  altogether  by  the  value 
of  the  stock  employed,  and  are  greater  or  smaller  in  proportion 
to  the  extent  of  this  stock, "he  says  in  another  place.3  The 
competition  of  capital  keeps  profits  down,4  and  in  an  advancing 
state  where  wealth  increases  they  are  lowest,  thus  moving  or- 
dinarily in  the  opposite  direction  from  wages.  The  idea  of  a 
minimum  rate  is  not  clearly  worked  out.  One  may  imply  that 
if,  from  the  lowest  competitive  price  at  which  the  dealer  is  likely 
to  sell  his  goods  for  any  considerable  time,  wages  and  rent  are 
deducted,  the  remainder  is  profit.5  "  Unless  they  yield  him  this 
profit,  .  .  .  they  do  not  repay  him  what  they  may  very 

Bk.  II,  Chap.  V  (Cannan's  ed.,  pp.  340-341). 
Bk.  I,  Chap.  IX  (Cannan's  ed.,  p.  89). 
Bk.  I,  Chap.  VI  (Cannan's  ed.,  p.  50). 
See  Bk.  II,  Chap.  IV  (Cannan's  ed.,  p.  335). 

Bk.  I,  Chap.  VII.     But  profits  may  rise  so  high  as  to  encroach  on 
rent  (Bk.  I,  Chap.  IX,  Cannan's  ed.,  p.  98). 


174  ECONOMIC  THOUGHT 

properly  be  said  to  have  really  cost  him."  More  specifically 
he  says  that  the  lowest  ordinary  rate  of  profit  must  be  some- 
thing more  than  what  is  sufficient  to  compensate  the  occasional 
losses  to  which  the  employment  of  stock  is  exposed.1  Elsewhere 
he  so  writes  that  it  may  be  inferred  that  profits  must  cover 
the  costs  incurred  by  the  employing  capitalist  in  advancing 
wages  to  his  laborers ;  when  the  capitalist  does  not  himself  em- 
ploy his  capital,  part  of  the  profits  naturally  belongs  to  the 
borrower,  who  runs  the  risk  and  takes  the  trouble  of  employing 
the  capital.2  The  other  part  in  this  case  is  interest,  and  Smith 
thinks  its  minimum  "  must  be  something  more  than  sufficient  to 
compensate  the  occasional  losses  to  which  lending,  even  with 
tolerable  prudence,  is  exposed."  3 

Smith  is  fairly  consistent  in  using  "  profits  "  to  indicate  the 
return  upon  capital  —  what  "  can  be  made  by  the  use  of  a  cap- 
ital," —  while  "  interest  "  is  a  part  of  profits  and  refers  to  the 
price  which  can  be  paid  by  a  borrower  for  the  use  of  capital. 
His  use  of  the  terms  "  gross  profit  "  and  "  neat  or  clear  profit  " 
is  not  very  definite,  it  being  left  for  his  followers,  Senior  and  Mill, 
to  develop  the  analysis.  He  differs  from  them  markedly  in 
his  distinction  between  wages  of  superintendence  ("  inspection 
and  direction  ")  and  profits,4  for  he  appears  to  exclude  such 
wages  from  the  latter  return. 

Two  exceptions  are  made  to  the  statement  that  wages  and 
profits  move  in  diverse  directions :  in  new  colonies  both  wages 
and  profits  may  be  high ;  and  in  the  "  stationary  state  "  both 
wages  and  profits  may  be  low.8 

Profits  so  vary  from  day  to  day  by  reason  of  change  in  prices 
and  fortune  that  it  is  impossible  to  determine  their  average  rate ; 
but  some  notion  may  be  formed  of  their  course  from  the  interest 
of  money,  which  they  closely  follow. 

1  Bk.  I,  Chap.  IX  (Cannan's  ed.,  p.  97). 

*  Bk.  I,  Chap.  VI  (e.g.  Cannan's  ed.,  p.  54). 

*  Bk.  I,  Chap.  IX  (Cannan's  ed.,  p.  98) ;  author's  italics. 
*Bk.  I,  Chap.  VI,  paragraphs  5  and  6  (Cannan's  ed.,  p.  50). 

Ibid.     In  the  latter  case  Smith  must  mean  real  wages,  as  the  high 
prices  of  subsistence  in  the  stationary  state  would  cause  high  money  wages. 


ADAM  SMITH  175 

Rent.  —  In  the  Wealth  of  Nations  the  treatment  of  land  and 
rent  begins  with  the  well-known  dictum  that  when  the  land  of 
a  nation  has  all  been  appropriated,  the  owners  demand  a  rent 
even  for  its  natural  produce.  The  laborer  then  has  to  pay  the 
landowner  for  the  license  to  gather  the  fruits  of  the  earth,  giv- 
ing the  latter  part  of  what  his  labor  collects  or  produces,  that 
is,  rent.1  This  rent  is  the  highest  price  which  a  tenant  can  pay 
his  landlord.  Its  natural  rate  will  leave  him  only  wages  and 
profits.  If  the  price  of  his  produce  yields  him  more  than  this,  the 
landlord  can  and  will  exact  it.  "  The  rent  of  land,  therefore, 
considered  as  the  price  paid  for  the  use  of  land,  is  naturally  a 
monopoly  price."  2  This  rent  varies  with  the  fertility  and  the 
situation  of  the  land.  If  distant  from  the  market,  a  greater 
amount  of  labor  is  required  and  the  surplus  remaining  for  the 
landlord  is  diminished.  Hence,  good  roads,  canals,  and  rivers 
equalize  rents. 

;  Except  for  calling  the  landowner  a  monopolist  and  his  rent 
a  monopoly  return,  the  main  outlines  of  Smith's  treatment  of 
rent  as  the  income  of  the  landowner  agree  with  more  recent 
thought. -It  is  in  the  discussion  of  the  relation  of  rent  to  price 
that  he  is  inconsistent.  In  the  foregoing  account  of  his  theory 
of  value  it  was  remarked  that  he  included  rent  as  a  cost.  Yet 
in  his  chapter  on  rent  he  makes  its  amount  depend  upon  price 
rather  than  enter  into  the  determination  of  price.  This  con- 
tradictory treatment  seems  inexcusable,  for  we  know  that 
Smith's  attention  was  called  to  the  error  of  making  rent  a 
price-determining  cost  along  with  wages  and  profits.3  The 
explanation  appears  to  be  that,  lacking  the  concept  of  the 
margin,  in  the  first  instance  he  confused  the  causes  of  higher 
prices  for  agricultural  produce  with  rising  rents.  And  it  seems 
likely  that  there  was  a  further  confusion  between  the  idea  of 
entrepreneur's  expenses  and  general  costs.  Between  the  two 
he  became  confused.  In  some  cases,  as,  for  example,  in  saying 
that  the  natural  price  of  a  commodity  is  the  one  just  sufficient 

1  Bk.  I,  Chap.  VI.     Compare  Hume's  essay,  Of  Interest. 

2  Bk.  I,  Chap.  XI.  » In  correspondence  with  Hume. 


176  ECONOMIC  THOUGHT 

to  pay  rent,  profits,  and  wages,  he  undoubtedly  takes  the  mer- 
chant's point  of  view.  Again,  when  he  says  that  the  total 
produce  of  a  nation,  or  its  price,  is  divided  into  three  parts, 
he  merely  has  in  mind  the  obvious  fact  that  rent  and  wages  and 
profits  must  all  be  paid  from  this  total  produce.  But  at  other 
points  he  speaks  as  though  rent  were  a  deduction  from  wages 
and  took  the  place  of  a  part  of  the  original  labor  cost  of  things, 
entering  value  in  lieu  of  labor  as  it  were. 

In  any  case,  his  ideas  were  not  well  formed,  and  he  shifts  his 
viewpoint.  In  this  matter  of  the  relation  of  rent  to  price  the 
philosopher-economist  was  working  into  new  fields. 

Public  Finance.  —  Smith  points  out  two  sources  of  public 
revenue :  the  funds,  land,  and  capital  of  the  state ;  and  taxes. 
He  favors  the  use  of  the  latter  alone.  Then  come  the  four 
celebrated  canons  of  taxation :  (i)  taxes  should  be  levied  accord- 
ing to  the  ability  of  those  who  pay  them;  (2)  their  amount 
should  be  certain  and  known;  (3)  their  levy  should  be  in  the 
manner  most  convenient  for  those  taxed ;  (4)  and  they  should 
be  so  contrived  as  to  be  most  economically  collected. 

Whether  or  not  these  canons  of  taxation  were  all  original  with 
Smith,1  his  formulation  attracted  great  attention,  and  their  in- 
fluence, through  his  writing,  has  been  notable. 

Of  course,  all  taxes  must  be  drawn  ultimately  from  rent, 
profits,  or  wages ;  and  these  sources  are  reviewed  for  the  purpose 
of  ascertaining  the  best,  the  conclusion  being  that  capital  and 
wages  should  not  be  taxed,  directly,  at  least,  and  that  rent 
forms  the  best  basis.  Assuming  that  profits  are  equalized  by 
competition,  a  tax  on  this  order  of  revenue  would  be  borne  by 
the  consumer.  In  any  case  it  would  be  very  difficult  to  assess 
and  collect.  In  this  connection,  too,  Smith  argues  against 
taxing  transfers  of  property  by  sale  or  inheritance.  As  to  wages, 
the  tax  would,  in  the  long  run,  fall  on  the  consumer,  —  in  fact, 
prices  would  be  raised  by  an  amount  greater  than  that  of  the 
tax. 

Thus  rent  remains  as  the  most  desirable  source,  and  in  the 
last  analysis  Smith's  position  is  similar  to  that  of  the  Physio- 

1  See  above,  pp.  125,  161. 


ADAM   SMITH  177 

crats.  But  he  differs  from  the  impdt  unique  idea  in  advocating 
taxes  on  luxuries.  In  this  way  the  capitalists  and  landowners 
might  be  reached  as  consumers. 

In  discussing  the  land  tax  Smith  allows  several  departures 
from  the  let-alone  policy,  although  he  does  not  seem  to  suspect 
that  he  is  disturbing  the  harmony  of  his  system.  It  requires 
little  reflection  to  show  that  levying  taxes  in  such  a  way  as  to 
encourage  one  method  of  production  and  discourage  another 
is  going  very  far  in  the  way  of  governmental  interference  in 
private  economic  affairs.  Thus  when  Smith  favors  taxing  at 
a  lower  rate  those  landlords  who  cultivate  their  own  lands,  or 
levying  a  specially  high  rate  on  those  who  restrict  the  freedom 
of  their  tenants  to  cultivate  as  they  see  fit,  he  thereby  advocates 
a  virtual  departure  from  laisser  faire. 

Government  Interference :  Laisser  Faire.  —  In  passing  to 
Book  V,  "  The  Revenue  of  the  Sovereign  or  Commonwealth," 
Smith  takes  occasion  to  make  a  formal  statement  of  the  impor- 
tant duties  of  the  sovereign  according  to  the  "  system  of  natural 
liberty."  These  duties  or  functions  are  as  follows :  (i)  "  the 
duty  of  protecting  society  from  the  violence  and  invasion  of 
other  independent  societies ;  (2)  the  duty  of  protecting,  as  far 
as  possible,  every  member  of  society  from  the  injustice  or  oppres- 
sion of  every  other  member  of  it,  or  the  duty  of  establishing  an 
exact  administration  of  justice;  and  (3)  the  duty  of  erecting 
and  maintaining  certain  public  works  and  certain  public  insti- 
tutions, which  it  can  never  be  for  the  interest  of  any  individual,  cr 
small  number  of  individuals,  to  erect  and  maintain,  .  .  .  though 
it  may  frequently  do  much  more  than  repay  it  to  a  great  society."1 
The  three  duties  are,  therefore,  briefly :  (i)  protection  against 
foreign  states ;  (2)  the  administration  of  law  and  justice ;  (3)  the 
establishment  and  maintenance  of  certain  public  works  and 
institutions.  Number  (3)  is  divided  into  (a)  the  institutions 
and  public  works  in  favor  of  trade  and  commerce,  as  streets, 
canals,  harbors,  embassies,  fortifications  in  countries  belonging 
to  barbarous  peoples;  (b)  the  education  of  the  youth,  i.e.  the 
school ;  (c)  the  education  of  the  entire  people,  i.e.  the  Church. 

1  Bk.  IV,  Chap.  IX  (Cannan's  ed.,  p.  185). 

N 


178  ECONOMIC  THOUGHT 

The  nation  ought  to  be  protected  by  a  paid  army  subject  to 
the  authority  of  the  king.  Government  in  civilized  states  should 
make  it  the  interest  of  a  part  of  the  people  to  become  good  sol- 
diers. This  matter  may  not  be  left  to  itself.  Self-interest  of 
private  individuals  is  here  an  insufficient  motive  power. 

The  last  two  classes  of  duties  should  be  performed  as  far  as 
possible  by  the  people  acting  under  the  impulse  of  self-interest ; 
but  the  state  must  see  that  they  are  performed.  Even  judges, 
according  to  Smith,  should  compete  with  each  other  like  mer- 
chants. Each  one  should  strive  to  draw  to  himself  the  largest 
possible  number  of  cases  and  earn  his  living  by  court  fees  and 
stamp  duties.  The  one  who  did  most  business  should  receive 
the  most  pay.  Fees  should  be  withheld  from  the  judge  until 
the  process  was  determined,  in  order  to  incite  the  court  to  dili- 
gence and  to  expedite  business.  Streets  should  be  kept  in 
order  by  tolls ;  harbors  by  port  duties.  He  holds  that  Church 
and  state  should  be  independent  of  each  other. 

The  Church,  the  school,  streets,  harbors,  and  similar  public 
works  are,  however,  beneficial  to  the  entire  society,  and  it  would 
really  be  no  injustice  if  society  were  required  to  defray  the 
expense  of  their  establishment  and  maintenance;  but  as  they 
benefit  especially  those  who  use  them  immediately,  it  is  to  be 
recommended  that  they  pay  for  them.  That  Smith  is  able  to 
take  both  views  of  the  matter  and  allow  that  both  may  be  per- 
fectly right,  shows  how  little  inclined  he  was  to  be  a  mere  doc- 
trinaire. 

Outside  of  these  general  social  and  economic  functions,  how- 
ever, no  inconsiderable  dispute  has  existed  over  the  extent  to 
which  Adam  Smith  favored  government  interference.  Some 
have  maintained  that  he  held  that  the  unrestrained  action  of 
selfishness  leads  to  the  highest  attainable  prosperity  of  the  com- 
monwealth; others,  that  he  recognized  the  necessity  of  a  con- 
siderable activity  on  the  part  of  other  forces  for  the  attainment 
of  the  highest  degree  of  prosperity. 

The  truth  appears  to  be  that  in  all  ordinary  cases,  according 
to  Smith's  idea,  the  "  natural  "  action  of  private  self-interest 
leads  to  the  most  perfect  organization  of  social  and  economic  re- 


ADAM   SMITH  179 

lations  and  to  the  highest  welfare  of  all.  Thus  he  argues  that 
"  the  patrimony  of  a  poor  man  lies  in  the  strength  and  dexterity 
of  his  hands ;  and  to  hinder  him  from  employing  this  strength 
and  dexterity  in  what  manner  he  thinks  proper  without  injury 
to  his  neighbor,  is  a  plain  violation  of  this  most  sacred  prop- 
erty. .  .  .  The  affected  anxiety  of  the  lawgiver  is  evidently 
impertinent  as  it  is  oppressive."  And  again  he  states  that 
"  every  individual  is  continually  exerting  himself  to  find  out  the 
most  advantageous  employment  for  whatever  capital  he  can 
command.  It  is  his  own  advantage  indeed  and  not  that 
of  the  society,  which  he  has  in  view.  But  the  study  of  his 
own  advantage  naturally,  or  rather  necessarily,  leads  him 
to  prefer  that  employment  which  is  more  advantageous  to  the 
society." 

These  excerpts  seem  to  make  Smith's  position  clear  enough. 
But  two  modifications  are  to  be  noted:  he  states  that  class 
interests  may  run  counter  to  those  of  society;  and  he  admits 
several  particular  exceptions  to  the  general  principle  of  laisser 
faire.  As  to  the  former,  it  is  a  modification,  not  a  contradic- 
tion, of  the  let-alone  principle.  That  Smith  did  not  believe  in 
an  entire  harmony  of  class  interests  is  true ;  but  it  does  not  fol- 
low that  he  should  have  called  in  the  aid  of  the  state  authority, 
nor  did  he.  The  idea  limits  his  optimistic  conclusions  rather 
than  conflicts  with  his  laisser-faire  doctrine. 

The  exceptional  cases  in  which  the  government  might  prop- 
erly interfere,  were  concretely :  — 

i.  In  foreign  commerce.  —  Taxes  on  imports  were  justifiable 
in  order  to  make  a  nation  self-sufficient  in  such  things  as  salt- 
peter, and  in  shipping  (Navigation  Acts) ;  and  also,  if  goods 
produced  at  home  were  taxed,  imports  of  these  goods  should 
bear  a  similar  tax.  If  English  products  were  taxed  in  foreign 
countries,  it  would  then  be  "  a  matter  of  deliberation  "  whether 
foreign  taxation  could  not  be  abolished  by  retaliatory  duties. 
A  duty  on  exports  of  wool  was  to  be  favored  under  certain  cir- 
cumstances.1 

1  Bk.  IV,  Chap.  VIII  (Cannan's  ed.,  p.  152),  several  of  these  excep- 
tions not  allowed  until  3d  ed.,  1784. 


l8o  ECONOMIC  THOUGHT 

2.  In  banking.  —  Where  the  liberty  of  a  few  endangers  the 
liberty  of  the  whole  society,  it  ought  to  be  restrained  by  law.1 

3.  Interest  rates.  —  Smith  thought  that  the  rate  of  interest 
should  be  legally  fixed,  though  with  due  regard  to  the  market 
rate. 

4.  Education.  —  In  the  case  of  those  who  could  not  afford  an 
education,  the  government  might  profitably  provide  for  free 
schooling. 

Besides  these,  and  the  interference  suggested  in  the  taxation 
of  rents,2  there  are  certain  places  in  which  Smith  expresses 
approval  of  interference  by  the  state ;  as,  for  example,  where  he 
speaks  of  measures  intended  to  regulate  the  relations  between 
laborers  and  employers,  in  framing  which  the  government  takes 
advice  of  the  latter  only.  He  says  of  this  case :  "  When  the 
regulation,  therefore,  is  in  favor  of  the  workman,  it  is  always 
just  and  equitable.  .  .  ." 3 

Philosophy  and  Method.  —  Some  of  the  particular  aspects 
of  Adam  Smith's  philosophy  have  already  been  pointed  out,  — 
its  assumption  of  the  "  natural,"  its  self-interest  basis,  its  let- 
alone  policy.  When,  however,  it  conies  to  placing  him  in  one 
or  the  other  of  the  two  great  groups,  Idealists  and  Material- 
ists, the  matter  is  not  so  simple.  A  well-known  German  econo- 
mist, for  instance,  declares  Adam  Smith  and  Kant  to  be  at  one.4 
In  which  case  he  might  be  rated  as  an  idealist.  On  the  other 
hand,  a  great  majority  would  consider  the  Wealth  of  Nations  as 
predominated  by  materialistic  tendencies.  In  so  far  as  his 
belief  about  the  natural  tendencies  of  men  in  their  industrial 
relations  is  concerned  the  latter  view  appears  sound.  The 
fruits  of  its  influence  show  it  at  a  glance. 

Yet  just  as  his  free  trade  teaching  was  not  unqualified,  so  the 
philosophy  displayed  in  the  Wealth  of  Nations  is  far  from  sim- 
plicity and  uniformity.  Smith  the  practical  man,  drawing 
conclusions  from  the  business  world,  Smith  the  thorough-going 
individualist,  Smith  narrowly  limiting  productivity  to  vendible 

1  Bk.  II,  Chap.  II  (Cannan's  ed.,  p.  307).  2  Above,  p.  177. 

3  Bk.  I,  Chap.  X,  Pt.  ii  (Cannan's  ed.,  p.  143). 

4  Oncken,  Die  Ethik  Smith's  u.  Kants. 


ADAM  SMITH  181 

commodities  and  speaking  of  men  as  "  other  commodities,"  l 
Smith  of  utilitarian  tendencies,  tended  to  emphasize  material 
things;  and  this  was  the  dominant  Smith.  To  this  Smith  a 
man's  career  is  determined  by  environment ; 2  division  of  labor 
dominates  character,  rather  than  vice  versa;3  and  men  are  the 
pawns  in  a  great  machine-like  game  of  nature.4  On  the  other 
hand,  and  half  concealed  in  the  Wealth  of  Nations  at  least, 
there  was  another  Smith  who  somewhat  limited  his  optimistic 
individualism,  who  tacitly  deduced  conclusions  from  ideal  pos- 
tulates, who  emphasized  the  social  point  of  view,  and  who  op- 
posed duty  and  moral  considerations  to  the  "  natural."  This 
was  the  Smith  who  wrote  the  Theory  of  Moral  Sentiments,  and 
he  shows  clear  traces  of  an  idealistic  tendency. 

The  difficulty  in  classifying  Smith's  underlying  philosophy 
is  undoubtedly  due  in  part  to  the  nature  of  the  subject  as  he 
conceived  it.  To  him  economics  concerned  the  wealth  of  na- 
tions, economic  activity  lay  in  the  pursuit  of  wealth  and  chiefly 
material  wealth,  and  the  mainspring  of  economic  activity  was 
self-interest.  Thus  he  abstracted  it  from  other  human  activi- 
ties and  motives.  As  Bonar  has  admirably  observed,  his  "  sys- 
tem of  natural  liberty  would  not  lead  to  perfect  economy  unless 
men  are,  for  the  sake  of  the  argument,  supposed  to  be  infallible 
in  judging  their  interests  and  single-minded  in  pursuing  them."  6 
It  is,  perhaps,  true  to  say  that  Adam  Smith's  materialism  lies 
more  in  his  economic  man  than  in  himself  and  that  any  obloquy 
on  this  score  harks  back  to  his  abstraction. 

But  Adam  Smith  can  hardly  be  called  a  utilitarian  in  philos- 

1  Bk.  I,  viii  (Cannan's  ed.,  p.   82).     "It  is  in  this  manner  that  the 
demand  for  men,  like  that  for  any  other  commodity,  necessarily  regulates 
the  production  of  men.    .  .  ." 

2  Smith  thought  men  were  born  with  equal  capacities. 
1  Bk.  I,  ii  (Cannan's  ed.,  pp.  7-8). 

4  See  Theory  of  Moral  Sentiments,  pp.  290-292  (ist  ed.). 

According  to  Bonar,  Adam  Smith  thought  of  industrial  progress  as 
nature's  doing,  not  man's :  "  It  was  according  to  law,  but  not  a  law  of  man's 
making ;  indeed  man  could  not  try  deliberately  to  make  it  without  spoiling 
the  work  of  nature."  (Philos.  and  Pol.  Econ.,  p.  174.) 

*  Philosophy  and  Political  Economy,  p  178. 


1 82  ECONOMIC  THOUGHT 

ophy,  though  he  gives  the  idea  of  utility  much  greater  play 
than  did  the  Physiocrats.  Like  them  he  had  a  metaphysical 
idea  of  a  natural  order;  though  as  a  hard-headed  Scotchman 
he  could  not  go  the  full  length  they  were  willing  to  go  in  subordi- 
nating everything  to  this  order.  In  any  conflict  between  the 
natural  on  the  one  hand  and  the  expedient  or  practical  on  the 
other,  the  latter  won  in  Smith's  mind.  He  tended  to  find  justi- 
fication for  what  was  useful.  It  might  be  said  that  his  kind 
of  nature  philosophy  was  ultimately  based  on  utility.  But 
immediately  and  consciously  he  was  no  utilitarian  in  the  sense 
that  Bentham,  Ricardo,  and  Mill  were:  he  was  not  so  thor- 
oughly rational  in  his  thought,  nor  did  he  have  the  pleasure- 
and-pain  calculus  worked  out  by  Bentham  and  Mill.  His  use 
of  utility  was  veiled,  as  it  were,  by  his  nature  philosophy. 

In  his  Theory  of  Moral  Sentiments,  moreover,  he  makes  virtue 
for  its  own  sake  a  primary  consideration.1  Though,  together 
with  the  Physiocrats,  Smith  was  instrumental  in  bringing  about 
a  formal  separation  of  Political  Economy  from  so-called  Moral 
Philosophy  and  Jurisprudence,  —  and  this  is  one  of  his  services, 
—  his  philosophy  and  that  of  his  successors  has  an  ethical 
element.2  The  assumed  naturalness  of  perfect  competition 
was  the  criterion.  As  a  general  proposition,  if  freedom  to  com- 
1  pete  were  encroached  upon,  the  encroachment  would  be  •wrong. 
Their  philosophy  was  in  this  regard,  then,  not  dissimilar  to  the 
just-price  idea,  "  natural  law  "  being  substituted  for  the  law 
of  clergy  and  state. 

On  the  score  of  method  the  same  duality  appears,  and  one 
writer  is  found  stating  that  Smith  established  "  a  deductive  and 
demonstrative  science,"  while  another  holds  that  the  Wealth  of 
Nations  consists  simply  of  practical  and  common-sense  sugges- 
tions. 

As  long  ago  as  1870,  Cliff  e  Leslie  expressed  the  following  analysis 
of  Smith's  reasoning  which  seems  to  be  essentially  sound :  "An 

1  E.g.  p.  203  (ist  ed.). 

2  Indeed  it  is  not  free  from  theological  premises.     Cf.  Leslie's  Essay  on 
the  "  Political  Economy  of  Adam  Smith,"  Fortnightly  Review,  Nov.  i,  1870; 
republished  in  Essays  in  Political  Economy  and  Moral  Philosophy. 


ADAM   SMITH  183 

examination  of  Adam  Smith's  philosophy  enables  us  to  trace  to 
its  foundation  the  theory  upon  which  the  school  in  question  has 
built  its  whole  superstructure.  The  original  foundation  is  in  fact 
no  other  than  that  theory  of  nature  which,  descending  through 
Roman  jural  philosophy  from  the  speculations  of  Greece,  taught 
that  there  is  a  simple  Code  of  Nature  which  human  institutions 
have  disturbed,  though  its  principles  are  distinctly  visible 
through  them,  and  a  beneficial  and  harmonious  natural  order  of 
things  which  appears  wherever  nature  is  left  to  itself.  In  the 
last  century  [the  eighteenth]  this  theory  assumed  a  variety  of 
forms  and  disguises,  all  of  them,  however,  involving  one  funda- 
mental fallacy  of  reasoning,  a  priori  from  assumptions  obtained, 
not  by  the  interrogation,  but  by  the  anticipation  of  nature ;  what 
is  assumed  as  nature  being  at  bottom  a  mere  conjecture  respect- 
ing its  constitution  and  arrangements.  The  political  philosophy 
flowing  from  this  ideal  source  presents  to  us  sometimes  an  as- 
sumed state  of  nature  or  of  society  in  its  natural  simplicity; 
sometimes  an  assumed  natural  tendency  or  order  of  events,  and 
sometimes  a  law  or  principle  of  human  nature ;  and  these  differ- 
ent aspects  greatly  thicken  the  confusion  perpetually  arising 
between  the  real  and  the  ideal,  between  that  which  by  the  as- 
sumption ought  to  be,  and  that  which  actually  is.  The  philos- 
ophy of  Adam  Smith,  though  combining  an  inductive  investiga- 
tion of  the  real  order  of  things,  is  pervaded  throughout  by  this 
theory  of  nature,  in  a  form  given  to  it  by  theology,  by  political 
history  and  by  the  cast  of  his  own  mind." 

Thus  he  assumes  a  priori  the  existence  of  an  "  original  state  " 
which  is  the  "  natural  order."  Moreover  certain  instincts  are 
derived  by  the  same  method,  and  their  working  in  the  original 
state  is  deduced.  For  example,  men  are  assumed  to  have  a 
natural  propensity  to  "  truck  and  barter,"  from  which  division 
of  labor  results.  And,  again,  a  desire  to  better  his  condition, 
and  to  live  as  much  at  his  ease  as  possible  is  taken  for  granted 
as  characterizing  every  man.1 

The  conclusion  is  that  Smith's  underlying  philosophy  was  indi- 
vidualistic with  a  strongly  materialistic  tendency;  but  that  it 
1  Bk.  II,  Chap.  Ill  (Carman's  ed.,  p.  323). 


1 84  ECONOMIC  THOUGHT 

was  hardly  utilitarian,  though  containing  the  germs  of  utilitarian- 
ism and  tending  in  that  direction.  His  method  was  a  combina- 
tion of  induction  and  deduction,  the  latter  predominating  in  his 
broadest  and  most  fundamental  reasonings. 

Practical  Influence.  —  There  can  be  no  doubt  that  the  political 
economy  of  Adam  Smith  has  had  a  tremendous  practical  effect. 
The  Wealth  of  Nations  has  been  translated  into  the  languages  of 
all  civilized  peoples.  It  has  almost  everywhere  directly  or  in- 
directly influenced  legislation  in  a  marked  manner.  In  some 
countries  the  influence  of  the  principles  it  taught  has  even  been 
too  great  to  be  conducive  to  a  sound  growth  of  institutions.  In 
England  it  passed  through  five  editions  while  Smith  still  lived. 
In  1876  the  centennial  of  its  appearance  was  celebrated,  and  it  is 
one  of  the  very  few  books  to  which  has  been  awarded  the  honor  of 
a  centenary  commemoration. 

The  statesman,  Pitt  the  younger,  was  a  careful  student  and 
professed  follower  of  Smith,  modifying  his  policy  to  a  certain  ex- 
tent so  as  to  make  it  accord  more  clearly  with  the  principles  of 
the  Wealth  of  Nations.  Had  circumstances  permitted,  he  would 
gladly  have  gone  farther  in  the  direction  pointed  out  in  that  work, 
but  his  plans  were  crossed  by  the  French  Revolution,  as  well  as 
by  the  prejudice  and  ignorance  of  conservative  England.  "  His 
power  rested  above  all  on  the  trading  classes,  and  these  were 
still  persuaded  that  wealth  meant  gold  and  silver,  and  that 
commerce  was  best  furthered  by  jealous  monopolies. ' ' *  Neverthe- 
less, he  effected  a  considerable  number  of  important  economic 
reforms.  Holding  with  Adam  Smith  that  in  the  arithmetic  of 
taxation  two  and  two  instead  of  making  four,  sometimes  make 
only  one,  he  removed  numerous  customs  duties  and  reduced 
others.  He  was  thus  able  to  diminish  smuggling,  and  increase 
the  revenues.  Adam  Smith  had  made  special  mention  of  the 
injustice  of  prohibiting  the  importation  of  Irish  cattle  into  Eng- 
land to  protect  the  English  farmer,  and  this  prohibition  Pitt  de- 
sired to  abolish,  as  well  as  the  heavy  duties  on  imported  Irish 
manufactures.  One  of  his  first  measures  as  minister  was  an 
attempt  to  conciliate  the  Irish  by  removing  the  barriers  which 

1  J.  R.  Green's  History  of  the  English  People,  Vol.  IV,  Chap.  III. 


ADAM  SMITH  185 

restricted  their  commerce  with  England.  In  1800,  after  some 
early  failures,  he  accomplished  his  purpose  by  the  union  of 
England  and  Ireland  which  provided  for  the  ultimate  freedom  of 
commerce  between  the  two  islands. 

The  Manchester  School.  —  This  work  of  enfranchisement  was 
carried  on  and  consummated  by  the  "  Manchester  School " ;  for 
when,  in  1819,  Parliament  provided  for  a  retention  of  some  duties 
between  England  and  Ireland,  it  was  the  Manchester  Chamber 
of  Commerce  which  so  protested  as  to  cause  a  retraction  of  that 
backward  step.  Although  it  involves  a  glance  ahead  into  the 
nineteenth  century,  just  a  word  concerning  the  school  should  be 
presented  here. 

The  name  "  Manchester  School  "  applies  to  a  group  of  men 
who  were  active  in  advocating  free  trade  and  who  believed  that 
a  heavy  burden  of  proof  rested  upon  those  who  would  do  away 
with  laisser  faire  in  any  field.  These  men  were  most  active  be- 
tween 1820  and  1850 ;  their  work  centered  largely  in  the  propa- 
ganda of  the  Anti-Corn  Law  League ;  and,  consisting  largely  of 
prominent  Manchester  merchants  and  manufacturers,  the  An- 
nual Reports  of  the  Manchester  Chamber  of  Commerce  express 
their  ideas.  Richard  Cobden  and  John  Bright  were  their 
leaders.  They  stood  for  a  revolt  against  regulation  and  for  a 
practical  application  of  Adam  Smith's  ideas.  Freedom,  they 
reasoned,  is  the  natural  condition  of  the  individual,  and  protec- 
tion is  a  harmful  restraint  upon  unprotected  industries.  It 
is  incorrect,  however,  to  think  that  as  a  whole  they  overlooked 
humanitarian  interests  in  opposing  factory  legislation.  The 
leaders  of  the  group  certainly  favored  regulation  to  protect  chil- 
dren, while  believing  that  adults  should  be  free  to  contract. 
Through  Bastiat,  as  will  be  seen,  the  school  exerted  considerable 
influence  in  France.1  In  this  manner  was  Smith's  influence  per- 
petuated. 

Buckle,  who  appears  to  have  looked  into  the  matter,  said  that 

1  On  the  Manchester  School  see  Rogers,  Cobden  and  Political  Opinion, 
1873 »  Prentice,  History  of  the  Anti-Corn  Law  League,  1853 ;  Cobden's 
Speeches,  edited  by  Bright  and  Rogers,  1870;  B right's  Speeches,  edited  by 
Rogers,  1868. 


1 86  ECONOMIC  THOUGHT 

the  first  notice  of  the  Wealth  of  Nations  in  Parliament,  so  far  as 
he  knew,  was  in  1783,  and  that  it  was  mentioned  several  times 
there  between  that  date  and  the  close  of  the  century.  After 
some  intervening  remarks  he  adds :  "  Well  may  it  be  said  of 
Adam  Smith,  and  that  too  without  fear  of  contradiction,  that 
this  solitary  Scotchman  has,  by  the  publication  of  one  single 
work,  contributed  more  towards  the  happiness  of  man  than  has 
been  effected  by  the  united  abilities  of  all  the  statesmen  and 
legislators  of  whom  history  has  presented  an  authentic  account." 
Even  Bagehot  says :  "  The  life  of  almost  every  one  in  England  — 
perhaps  of  every  one  —  is  different  and  better  in  consequence 
of  it.  No  other  form  of  political  philosophy  has  ever  had  one 
thousandth  part  of  the  influence  on  us." 

Englishmen  delight  to  call  Adam  Smith  the  Father  of  Political 
Economy.  While  it  is  possible  that  this  title  belongs  rather  to 
Turgot  than  to  him,  there  is  no  doubt  that  the  Wealth  of  Nations 
has  become  the  corner  stone  of  economic  science.  Those  who 
went  before,  prepared  the  way  for  him ;  those  who  came  after, 
carried  on  his  work. 

Critical  Estimate  of  Smith's  Wealth  of  Nations.  —  An  emi- 
nent follower  of  Adam  Smith,  N.  W.  Senior,  summed  up  his  work 
in  the  following  terms :  "  The  inquiry  which  Quesnay  originated 
was  pursued,  and  with  still  greater  success,  by  Adam  Smith. 
Smith  was  superior  to  Quesnay,  and  perhaps  to  every  writer 
since  the  times  of  Aristotle,  in  the  extent  and  accuracy  of  his 
I  knowledge.  He  was,  on  the  whole,  as  original  a  thinker  as  Ques- 
nay, without  being  equally  subject  to  the  common  defect  of 
original  thinkers,  a  tendency  to  push  his  favorite  theories  to  ex- 
tremes ;  and  in  the  far  greater  freedom  then  allowed  to  industry 
in  Great  Britain  than  in  France,  and  in  the  greater  publicity  with 
us  of  the  government  receipt  and  expenditure,  he  possessed  far 
greater  advantages  as  an  observer  .  .  .  assisted  by  a  style  un- 
equalled in  its  attractiveness,  he  has  almost  completely  super- 
seded the  labours  of  his  predecessors."  * 

Though  Smith's  thought  is  justly  praised  for  its  moderation, 

1  Lectures  on  Political  Economy,  1852,  p.  5. 


ADAM  SMITH  187 

and  his  style  for  its  attractiveness,  the  careful  reader  notices  not 
a  few  careless,  ill-expressed  utterances  and  many  inconsistencies. 
Universal  rules  are  given  absolutely,  only  to  be  followed  by  im- 
portant deviations ;  now  a  factor  is  cause,  now  effect,  etc.  In 
spite  of  his  moderation,  relatively  to  both  predecessors  and  fol- 
lowers, too,  an  undue  absolutism  somewhat  mars  his  reasoning. 
To  this  extent  Senior's  estimate  must  be  modified.  But  on  the 
whole  it  is  eminently  just. 

With  more  specific  reference  to  Smith's  contribution  to  the 
material  of  economic  thought,  another  well-known  follower  of 
his  has  said :  "  In  adopting  the  discoveries  of  others,  he  has  made 
them  his  own ;  he  has  demonstrated  the  truth  of  principles  on 
which  his  predecessors  had,  in  most  cases,  stumbled  by  chance ; 
has  separated  them  from  the  errors  by  which  they  were  previously 
encumbered ;  has  traced  their  remote  consequences,  and  pointed 
out  their  limitations ;  has  shown  their  practical  importance  and 
real  value  —  their  mutual  dependence  and  relation ;  and  has  re- 
duced them  into  a  consistent,  harmonious,  and  beautiful  system." l 

To  part  of  this  statement  of  the  case  decided  exception  is  to  be 
taken,  while  much  more  is  to  be  said.  In  some  instances,  as  in 
the  theory  of  value  and  rent,  Smith  does  not  trace  remote 
consequences,  nor  does  he  show  their  dependence  and  relation. 
Certainly  there  is  much  lacking  on  the  score  of  harmony  and 
consistency. 

Of  the  host  of  adverse  criticisms  of  Smith's  reasoning  the  fol- 
lowing seem  to  be  the  most  fundamentally  important :  — 

I.  His  philosophy  was  over-individualistic.     Its  tendency  was 
so  to  restrict  the  sphere  of  government  activity  —  in  spite  of  the 
particular  exceptions  he  made  —  as  to  be  the  basis  for  harmful 
conclusions.     This  was  in  part  the  fruit  of  a  negativism,  which, 
though  much  less  marked  than  that  of  the  Physiocrats,  was 
deep  seated. 

II.  He  was  at  bottom  an  essentially  materialistic  thinker.    As 
Ingram  says,  "  He  does  not  keep  in  view  the  moral  destination  of 
our  race,  nor  regard  wealth  as  a  means  to  the  higher  ends  of  life, 

1  M'Culloch,  Discourse  on  the  Science  of  Political  Economy,  Edinburgh, 
1825,  p.  56. 


1 88  ECONOMIC  THOUGHT 

and  thus  incurs,  not  altogether  unjustly,  the  charge  of  material- 
ism." 

III.  These  traits  were  made  more  harmful  by  his  absolutism 
of  theory.  In  spite  of  bits  of  historical  treatment,  he  lacked  the 
concept  of  relativity,  and  was  led  to  state  his  doctrines  too  nar- 
rowly and  in  too  sweeping  a  fashion. 

To  be  noted  as  particular  evidence  of  concrete  error,  is  his 
\  treatment  of  the  productivity  of  different  kinds  of  labor,  and  of 
Ithe  relation  of  rent  to  price. 

/  Smith's  chief  services  are  mostly  suggested  in  the  above  quota- 
tions. His  breadth  of  view  and  catholicity  were  notable.  Tak- 
ing in  most  of  what  was  best  in  English  and  French  thought,  he 
gave  Political  Economy  a  definition  and  distinct  content  that  it 
had  lacked.  He  brought  labor  and  capital  into  prominence 
along  with  the  land  factor  emphasized  by  the  Physiocrats.  And, 
imperfect  as  it  was,  his  discussion  of  value  was  a  marked  advance 
ever  that  of  any  predecessor.  / 

Before  Smith,  economic  investigation  was  taken  up  with  the 
producer  of  wealth.  The  producer  was  the  starting  point. 
While  dealing  largely  with  production,  Smith  started  from  the 
standpoint  of  the  consumer :  "  Consumption  is  the  sole  end 
,0  <t»-/v/  and  purpose  of  all  production,  and  the  interest  of  the  producer 
ought  to  be  attended  to,  only  so  far  as  it  may  be  necessary  for 
promoting  that  of  the  consumer."  1  Though  sometimes  over- 
looked or  unexpressed,  this  has  been  the  ultimate  standpoint  of 
the  pure  English  school  ever  since. 

There  are  surprisingly  few  important  economic  ideas  of  which 
there  is  not  some  trace  in  the  Wealth  of  Nations.  For  example, 
there  is  the  theory  of  population.  This  idea  Smith  suggests,  but 
he  does  not  work  it  out.  The  great  problem  of  political  economy 
has  been  found  in  the  distribution  of  wealth,  and  but  little  prog- 
ress can  be  made  in  its  solution  until  inquiry  is  made  with  re- 
gard to  the  present,  as  well  as  probable  future,  population  among 
which  wealth  is  to  be  divided,  and  also  the  effects  on  its  numbers 
to  be  expected  from  this  or  that  distribution  of  wealth.  Both 
Turgot  and  Adam  Smith  mentioned  incidentally  the  effects  of  the 
1  Wealth  of  Nations,  Bk.  IV,  Chap.  VIII  (Cannan's  ed.,  p.  159). 


ADAM  SMITH  189 

increase  of  population  on  the  wages  of  the  laboring  classes ;  but 
they  did  not  bring  the  matter  forward  prominently,  nor  did 
they  make  any  attempt  at  a  discovery  and  scientific  treatment 
of  laws  governing  such  increase.  This  work  was  reserved  for 
Malthus. 


II.     THE   EARLIER  FOLLOWERS 

As  already  indicated,  the  Wealth  of  Nations  gained  a  rapid 
ascendency  and  the  dominant  schools  of  economists  in  England 
and  France  soon  came  to  call  themselves  the  followers  of  Adam 
Smith.  In  Germany,  too,  Smith  took  the  lead,  though  here 
his  influence  was  not  so  quickly  felt  and  a  considerable  degree 
of  independence  was  early  apparent.  The  Germans  called  this 
whole  tendency  Smithianismus.  It  is  with  these  earlier  followers 
of  Smith's  doctrines,  in  the  late  years  of  the  eighteenth  century 
and  down  to  1850,  that  this  part  of  the  work  is  to  deal. 

i.    PESSIMISTIC   TENDENCIES 

It  has  been  suggested  that  there  were  both  optimistic  and  pes- 
simistic tendencies  embedded  in  the  Wealth  of  Nations.  Thus 
the  idea  that  through  self -interest  men  are  led  as  by  a  divine  hand 
so  to  act  as  to  insure  the  best  economic  results  for  society  is 
taught  by  Smith,  and  has  been  at  the  bottom  of  a  large  part  of 
the  optimism  in  economic  thought.  On  the  other  hand,  the  doc- 
trine that  the  interests  of  various  classes  clash  with  one  another, 
and  with  those  of  society,  may  lead  to  pessimistic  conclusions, 
though  not  necessarily.  Moreover,  in  believing  that  every 
nation  must  at  some  time  reach  a  "  stationary  state,"  Smith 
profoundly  affected  succeeding  economic  thinkers  and  opened 
the  door  for  many  pessimistic  doctrines. 

Accordingly  in  what  follows  two  groups  have  been  distinguished 
among  the  general  adherents  of  Smith's  teachings:  those  who 
fell  in  with  the  optimistic  tendencies ;  and  those  who  developed 
the  pessimistic  side.  Perhaps  one's  views  may  be  colorless  as  to 
optimism  and  pessimism.  Certainly  some  of  Smith's  followers 
do  not  fall  clearly  in  either  group,  and  a  third  category  has  been 
retained  for  such. 

Probably  the  pessimistic  tendencies  were  developed  earliest ; 
and  such  tendencies  appear  in  the  thought  of  one  of  his  first 
English  followers,  Malthus. 


190 


CHAPTER  XI 
MALTHHS    AND  THE    THEORY  OF    POPULATION » 

ONE  of  the  greatest  among  Adam  Smith's  followers  was 
Thomas  Robert  Malthus.  There  were  others  who  lived  about 
the  same  time,  as  Dugald  Stewart  and  M'Culloch,  who  made 
some  name  for  themselves  as  economists ;  but  they  added  noth- 
ing essential :  if  their  work  should  perish,  it  would  occasion  no 
perceptible  gap  in  economic  thought.  Malthus  is  the  first 
English  economist  after  Smith  a  consideration  of  whose  thought 
falls  within  the  scope  of  these  chapters. 

Life  and  Circumstances.  —  Malthus  was  born  in  Rockery, 
County  Surrey,  England,  in  1766,  and  came  of  very  respectable 
family.  His  father,  Daniel  Malthus,  if  not  a  man  of  wealth,  ap- 
pears at  least  to  have  lived  in  very  comfortable  circumstances. 
Young  Malthus  studied  philosophy  and  theology  at  Cambridge, 
graduating  with  honors  in  1788,  and  was  made  Fellow  of  Jesus 
College  not  long  afterwards.  After  leaving  Cambridge  he  took 
charge  of  a  small  parish  in  his  native  county.  In  1799  he  left 
England  for  a  trip  on  the  Continent  in  company  with  Daniel 
Clarke,  a  traveler  of  some  note.  On  account  of  the  war  then 
disturbing  Europe,  he  could  see  comparatively  few  countries, 
and  those  not  the  most  important  ones.  He  traveled  through 
Sweden,  Norway,  Finland,  and  Russia.  The  notes  scattered 
throughout  his  writings  show  what  good  use  he  made  of  his 
opportunities  for  observation.  The  Peace  of  Amiens  in  1802 
enabled  Malthus  to  visit  France,  Switzerland,  and  other  parts 

1  On  Malthus  and  his  work  see  Bonar,  Malthus  and  his  Work,  1885 ; 
Fetter,  Versuch  einer  Bevb'lkerungslehre  (Jena,  1894),  and  "The  Essay  of 
Malthus,  a  Centennial  Review"  (in  Yale  Review,  August,  1898) ;  Hadly,  Eco- 
nomics, §§  47-60;  Cannan,  Theories  of  Production  and  Distribution;  Gide- 
Rist,  Histoire  des  Doctrines  Economiques  (1909),  pp.  138  ff.  and  the  following 
footnote  references. 

191 


192  ECONOMIC  THOUGHT 

of  Europe  which  he  was  unable  to  see  on  his  first  tour.  In 
1805  he  was  made  professor  of  history  and  political  economy 
in  the  college  of  the  East  India  Company  at  Haileybury,  near 
London,  and  retained  the  position  until  his  death  in  1834. 

Of  more  importance,  perhaps,  than  any  one  factor  in  shaping 
Malthus'  thought  was  the  condition  of  England  just  prior  to 
and  during  the  time  at  which  he  wrote.  During  the  first  half 
of  the  eighteenth  century  the  agricultural  prosperity  of  England 
had  been  great;  but  toward  the  end  of  the  century  such  dis- 
tress prevailed  that  it  seemed  as  if  there  were  too  many  people 
for  the  land  to  support.  Thorold  Rogers,  in  another  connec- 
tion, testifies  that  during  the  last  thirty  years  of  the  eighteenth 
century  circumstances  had  totally  changed :  "  There  is  ... 
reason  to  believe  that  the  increase  of  population  was  arrested. 
Prices  rose,1  and,  at  least  while  this  country  was  at  war  with 
nearly  the  whole  civilized  world,  the  nation  well-nigh  suffered 
the  horrors  of  famine.  During  the  whole  of  that  war,  the 
country  seemed  to  be  passing  through  one  of  those  cycles  of 
scanty  crops  which  appear  to  occur  in  some  undefined  biit 
mysterious  fashion."  2  Other  reports  only  confirm  these  state- 
ments. 

Of  the  state  of  Ireland  at  this  time  —  a  country  mentioned 
by  Malthus  as  furnishing  a  case  of  overpopulation  —  the  his- 
torian Green  writes :  "  Poverty  was  added  to  the  curse  of 
misgovernment,  and  poverty  deepened  with  the  rapid  growth 
of  the  native  population  till  famine  turned  the  country  into  a 
hell."3 

The  evil  effects  of  the  Industrial  Revolution  had  hardly 
come  into  view  in  Smith's  day,  but  even  when  Malthus  wrote 

1  Average  prices  of  wheat  per  quarter  by  decades :  — 

1771-1780 34*.  id. 

1781-1790 37*.  id. 

1791-1800 635.  6d. 

1801-1810 835.  nd. 

1811-1820 875.  6d. 

*  Introduction  to  Adam  Smith's  Wealth  of  Nations. 

*  Short  History  of  the  English  People,  p.  788. 


MALTHUS  AND  THE  THEORY  OF  POPULATION       193 

his  first  edition  they  had  manifested  themselves.  Unemploy- 
ment, poverty,  disease,  and  riot  were  among  them.  They  made 
the  agricultural  situation  still  more  significant  for  evil. 

Partly  as  a  result  of  these  evils,  various  socialistic  or  com- 
munistic schemes  springing  up  chiefly  on  French  soil  began  to 
be  urged. 

To  add  to  the  whole  dark  picture,  the  English  Poor  Law 
was  defective  both  in  substance  and  administration.  The  rates 
were  enormous,  the  independence  of  the  laborer  was  sapped, 
and  a  premium  was  placed  upon  incompetence  and  pauperism. 

Surely  the  conditions  of  the  growth  of  population  required 
investigation.  Not  the  needs  of  some  far-off  place  and  time, 
but  the  requirements  of  his  own  age  and  country,  gave  Malthus 
his  life  work.  Like  so  many  great  men,  he  was  preeminently 
practical. 

It  has  appeared  that  it  was  a  Mercantilist  notion  that  a 
very  dense  population  was  desirable.  Well  down  to  Malthus' 
day  it  was  a  general  belief  that  a  rapid  growth  in  population 
meant  prosperity.  People  were  doubtless  led  to  this  opinion 
by  observing  that  the  wealthiest  and  strongest  countries  were 
often  the  most  populous.  This  view  was  developed  by  the 
German  economist  Siissmilch,  whose  work  —  Die  Gottliche 
Ordnung  in  den  Veranderungen  des  menschlichen  Geschlechts, 
1742  *  —  appears  to  have  been  diligently  studied  by  Malthus. 
And  Sonnenfels  constructed  his  social  system  around  this 
idea.2  In  many  German  cities  the  married  state  was  a  con- 
dition of  holding  office,  and  similar  schemes  were  proposed  in 
England.  In  Malthus'  day  the  government  and  the  employ- 
ing classes  generally  favored  a  denser  population,  the  one 
to  swell  the  army,  the  other  to  fill  its  factories  and  shops  with 
cheap  labor. 

1  See  Roscher,  Gesch.  d.  Nat.  Oek.,  pp.  421-424.     Siissmilch  was  an  econ- 
omist of  Mercantilist  leanings.     He  dealt  with  birth  and  death  rates,  the 
proportion  of  the  population  of  various  ages,  etc.,  his  service  being  the 
development  of  the  idea  of  regularities  or  laws.     He  was  acquainted  with 
Petty's  writings.     He  showed  strong  theological  influences,  taking  as  a  text 
the  Biblical  injunction  to  be  fruitful  and  multiply. 

2  Grundsatze  der  Polizei,  Handlung-  u.  Finanzwissenschaft,  Vienna,  1765. 


1 94  ECONOMIC  THOUGHT 

His  Forerunners.  —  To  be  sure,  Malthus  did  not  originate 
the  idea  that  population  tends  to  increase,  nor  that  the  increase 
in  population  brings  hardship.  In  the  preparation  of  his  first 
essay  (1798)  he  made  use  of  the  works  of  Wallace,  Hume, 
Smith,  and  Price;  while  in  the  second  edition  he  noted  with 
some  surprise  that  much  had  been  done  by  Montesquieu, 
Franklin,1  Stewart,  Young,  and  Townsend.  Dr.  Robert  Wal- 
lace, for  example,  in  his  Various  Prospects  of  Mankind,  Nature, 
and  Providence  (1761),  saw  a  fatal  objection  to  communism  in 
"  the  excessive  population  that  would  ensue  " ;  Smith's  sug- 
gestions have  already  been  referred  to ; 2  and  the  Rev.  Joseph 
Townsend  anticipated  Malthus  in  observing  that,  where  reason 
does  not  interfere,  plenty  is  followed  by  increased  population, 
want,  and  a  higher  death  rate.3 

Malthus  was  personally  acquainted  with  Jean  Jacques 
Rousseau  and  David  Hume,  and  the  latter  must  have  exercised 
some  direct  influence  over  him.  Indeed,  in  one  of  his  essays 
Hume  had  attempted  to  estimate  the  populations  of  some  of 
the  states  of  classical  antiquity ; 4  and  Malthus,  by  calculating 
the  food  supply  available  to  those  states,  undertook  to  test 
those  estimates  and  the  statistics  of  the  Greek  historians. 

The  Essay  on  Population :  its  Origin  and  First  Edition.  — 
The  more  immediate  cause  of  the  Essay  on  Population  was 
furnished  by  the  writings  of  William  Godwin,  a  well-known 
Englishman  of  the  eighteenth  century.  In  1793  Godwin  had 
published  a  work  entitled  Enquiry  concerning  Political  Justice 
and  its  Influence  on  Morals  and  Happiness,  which  at  the  time 

1  Malthus  cites  the  following  remarkable  passage  in  Benjamin  Franklin's 
Essay  on  the  Increase  of  Mankind  (1751) :  "There  is,  in  short,  no  bound  to 
the  prolific  nature  of  plants  or  animals,  but  what  is  made  by  their  crowding 
and  interfering  with  each  other's  means  of  subsistence.      Was  the  face  of 
the  earth  vacant  of  other  plants,  it  might  be  gradually  sowed  and  overspread 
with  one  kind  only,  as,  for  instance,  with  fennel;    and,  were  it  empty  of 
other  inhabitants,  it  might  in  a  few  ages  be  replenished  with  one  nation  only, 
as,  for  instance,  with  Englishmen." 

2  Above,  p.  172. 

3  Dissertation  on  the  Poor  Law,  1 786. 

4  Essay  on  the  Porousness  of  Ancient  Nations  (1752). 

'  I 


MALTHUS  AND  THE  THEORY  OF  POPULATION       195 

created  a  great  sensation.  Its  thesis  was  the  perfectibility  of 
man.  In  it  Godwin  took  the  ground  that  government  —  which 
he  described  as  a  necessary  evil  —  is  to  blame  for  the  un- 
happiness  and  misfortunes  of  man.  The  book  was  much  dis- 
cussed and  of  course  found  its  advocates  and  opponents .  Among 
the  former  was  Daniel  Malthus,  among  the  latter,  Thomas 
Robert,  the  son.  Godwin  published  in  1797  a  number  of 
essays  in  the  form  of  a  book,  entitled  Enquirer. 

It  was  in  reply  to  one  of  these,  on  Avarice  and  Prodigality, 
that  Malthus,  in  1798,  published  the  first  edition  of  his  famous 
Essay  on  the  Principle  of  Population;  or,  a  View  of  its  Past 
and  Present  Effects  on  Human  Happiness;  with  an  Enquiry 
into  our  Prospects  respecting  the  Future  Removal  or  Mitigation 
of  the  Evils  which  it  Occasions.1  Malthus  sought  to  show  that 
an  abolition  of  government  could  not  restore  us  to  Eden,  be- 
cause the  ground  of  unhappiness  and  misfortune  is  to  be 
found  in  our  weak  and  imperfect  natures.  The  first  edition  of 
the  Essay  attracted  the  widest  attention  and  led  Malthus  to 
continue  his  investigations.  As  successive  editions  were  called 
for,  they  were  revised  and  enlarged,  until  the  last  edition  of 
the  work  published  during  his  lifetime  —  the  sixth,  in  1828  — 
differed  very  materially  from  the  original  essay. 

By  reason  of  the  occasion,  the  first  edition  was  little  more 
than  a  controversial  pamphlet  and  was  not  unnaturally  put 
forth  anonymously.  Godwin  had  written :  "  There  is  a  prin- 
ciple in  human  society,  by  which  population  is  perpetually 
kept  down  to  the  level  of  the  means  of  subsistence.  Thus 
among  the  wandering  tribes  of  America  and  Asia,  we  never  find 
through  the  lapse  of  ages  that  population  has  so  increased 
as  to  render  necessary  the  cultivation  of  the  earth."  And 
he  held  that  the  system  of  private  property  then  existing 
was  the  cause  of  unhappiness.  He  argued  for  a  future 
equality  of  property,  his  doctrine  being  a  sort  of  enlightened 
anarchism. 

Malthus  retorted,  "  This  principle,  which  Mr.  Godwin  thus 
mentions  as  some  mysterious  and  occult  source  .  .  .  will  be 
1  This  is  the  title  of  the  ad  edition. 


196  ECONOMIC  THOUGHT 

found  to  be  the  grinding  law  of  necessity ;  misery,  and  the  fear 
of  misery."  l  He  held  that  human  institutions,  far  from  aggra- 
vating, had  tended  considerably  to  mitigate  this  misery,  though 
they  could  never  remove  it. 

To  this  conclusion  he  was  led  by  the  assumption  of  two 
postulates  or  premises:  (i)  "that  food  is  necessary  to  the 
existence  of  man ; "  (2)  "  that  the  passion  between  the  sexes 
is  necessary,  and  will  remain  nearly  in  its  present  state."  Then, 
though  not  formally  so  stated,  a  third  postulate  is  deduced  from 
these;  namely,  "  the  power  of  population  is  indefinitely  greater 
than  the  power  in  the  earth  to  produce  subsistence  for  men. 
Population,  when  unchecked,  increases  in  a  geometrical  ratio. 
Subsistence  only  increases  in  an  arithmetical  ratio." ;  So 
ran  the  statement  in  the  first  edition. 

It  followed  that  certain  checks  must  restrain  the  superior 
growth  of  population :  a  "  preventive  "  check  in  the  shape 
of  a  foresight  of  the  difficulties  of  rearing  a  family ;  and  "  posi- 
tive "  checks  in  the  shape  of  poverty,  disease,  war,  and  other 
forms  of  actual  distress.  Though  he  recognized  that  through 
foresight  marriage  might  be  postponed,  he  thought  this  would 
mean  vice,  which  in  turn  would  mean  misery.  Thus  a  happy 
or  perfect  state  of  society  could  not  be  hoped  for. 

One  has  but  to  compare  the  prefaces  of  the  first  and  second 
editions  to  ascertain  the  essentials  of  the  now  classical  develop- 
ment in  Malthus'  thought.  In  the  former  he  emphasizes  a 
possible  future  improvement  of  society,  and  his  view  has  a 
"  melancholy  "  hue,  there  being  "  dark  tints  "  in  the  picture. 
In  the  latter  he  endeavors  "  to  soften  some  of  the  harshest 
conclusions,"  and  hopes  he  does  not  express  any  opinions  con- 
cerning the  future  of  society  in  which  past  experience  does  not 
bear  him  out.  In  the  former  he  is  to  adduce  facts  in  connec- 
tion with  a  virtually  new  particular  inquiry  into  the  means  by 
which  population  is  kept  to  the  subsistence  level ;  in  the  latter 
he  recognizes  considerable  previous  thought  on  this  phase  of 
the  question  and  proposes  to  pursue  the  subject  to  its  conse- 

1  ist  ed.,  p.  176;  Economic  Classics  Series,  p.  47. 

2  ist  ed.,  Chap.  I ;  Economic  Classics  Series,  p.  7. 


MALTHUS   AND  THE  THEORY  OF  POPULATION        197 

quences  and  draw  practical  inferences.  Finally,  he  remarks, 
"  I  have  so  far  differed  in  principle  ...  as  to  suppose  another 
check  to  population  possible  which  does  not  strictly  come  un- 
der the  head  either  of  vice  or  misery."  The  new  check  was 
virtuous  abstention  or  "  moral  restraint  "  :  "  that  sentiment, 
whether  virtue,  prudence,  or  pride,  which  continually  restrains 
the  universality  and  frequent  repetition  of  the  marriage  con- 
tract." 

Thus  the  revised  edition  of  1803  was  softened  or  toned  down, 
and  became  an  attempt  at  more  scientific  accuracy.  In  the 
attempt,  as  has  been  often  observed,  his  ideas  lost  much  of  their 
novelty ;  while  they  gained  in  truth. 

That  the  admission  of  the  new  check  greatly  weakens  his 
argument  against  the  possibility  of  social  perfectibility,  will  be 
observed.  It  still  has  some  force  against  communism,  how- 
ever, for  "  moral  restraint  "  normally  rests  upon  private  property. 
Communism,  properly  speaking,  means  the  abolition  of  private 
property  even  in  consumption,  and  the  sharing  of  social  income 
on  some  basis  of  absolute  equality  of  needs  or  wants.  Under 
such  a  system  men  as  at  present  constituted  could  hardly  feel 
the  need  for  restraint  so  keenly  as  they  do  when  their  own 
property  or  income  is  at  stake. 

The  Malthusian  Principle  as  developed  in  Later  Editions. 

-  i.    Tendencies  of    Population  and  Subsistence.  —  With  the 

foregoing  developments  in  mind,  Malthus'   complete  doctrine 

on  the  subject  of  population,  as  he  expounded  it  in  his  later 

editions,  may  now  be  better  appreciated. 

The  essence  of  these  editions  may  be  expressed  in  the  fol- 
lowing words:  a  review  of  the  different  states  of  society  in 
which  man  has  existed  shows  that  population  has  a  constant 
tendency  to  increase  beyond  the  means  of  subsistence,  and  is 
kept  to  its  necessary  level  by  various  positive  and  preventive 
checks,  including  "  moral  restraint." 

This  conclusion  rests  upon  the  "  natural  "  operation  of  three 
factors :  — 

I.  Rate  of  increase  of  population :  Minimum  =  Geometric 
ratio. 


198  ECONOMIC  THOUGHT 

II.  Rate  of  increase  of  subsistence :  Maximum  =  Arithmetic 

ratio. 

III.  Checks  on  the  increase  of  population. 

The  first  two  might  be  combined  and  be  termed  the  ratio  of 
the  increase  of  population  to  the  increase  of  subsistence;  or, 
for  any  given  time,  the  ratio  of  population  to  subsistence.  As 
to  the  first,  Malthus  says :  "It  may  safely  be  pronounced 
therefore,  that  population,  when  unchecked,  goes  on  doubling 
itself  every  twenty-five  years,  or  increases  in  a  geometrical 
ratio."  1  His  use  of  an  assumed  ratio  of  increase  of  food  appears 
in  the  following  words :  "  It  may  be  fairly  pronounced  therefore, 
that,  considering  the  present  average  state  of  the  earth,  the  means 
of  subsistence,  under  circumstances  the  most  favorable  to  human 
industry,  could  not  possibly  be  made  to  increase  faster  than  in 
an  arithmetical  ratio."  2 

The  formula  Malthus  attempted  to  establish  is  often  crit- 
icized as  though  the  essence  of  the  theory  were  dependent 
upon  an  arithmetical  progression  in  the  increase  of  food  and  a 
geometrical  progression  in  the  increase  of  population.  This  is 
not  the  case.  The  gist  of  the  Malthusian  doctrine  is  contained 
in  the  single  sentence,  "  It  is  the  constant  tendency  in  all 
animated  life  to  increase  beyond  the  nourishment  prepared  for 
it."  But  the  formula  is  often  incorrectly  given  as  follows: 
Population  increases  in  a  geometrical  progression;  the  means 
of  subsistence  in  an  arithmetical.  The  disproportion  resulting 
from  the  two  different  rates  of  increase  must  occasion  wars, 
vice,  and  misery. 

This  representation  is  to  be  found  nowhere  in  the  writings 
of  Malthus.  In  his  later  editions  he  simply  speaks  of  a  tendency 
of  population.  He  means  that  every  increase  of  population 
augments  the  power  to  increase;  and,  the  desire  to  increase 
being  assumed,  that  the  increase  would  take  place  unless  cer- 
tain restraints  are  called  into  operation.  As  to  the  possibility, 
this  is  simply  a  physiological  fact.  Supposing  that  other  things 
are  equal,  —  although  Malthus  does  not  say  that  they  are  so, 

1  Bk.  I,  Chap.  I,  2d  ed. ;  present  writer's  italics. 

2  Ibid. ;  present  writer's  italics. 


MALTHUS  AND  THE  THEORY  OF  POPULATION         199 

—  it  is  easier  for  a  population  of  four  millions  to  add  a  million 
to  its  number  and  become  five  millions  than  it  is  for  one  of 
one  million  to  add  a  million  to  its  number  and  become  two 
millions.  This  is,  it  seems,  essentially  what  Malthus  meant  by 
the  statement  that  population  has  a  tendency  to  increase  in 
geometrical  progression. 

But  how  is  it  with  the  means  of  subsistence  in  so  far  as  they 
depend  upon  the  soil  ?  —  for  agriculture  as  the  source  of  raw 
material,  and  not  manufactures,  is  of  course  referred  to  by 
Malthus  in  his  law  of  population.  Is  the  state  of  things  here 
the  same  as  it  is  in  the  case  of  population?  Does  every  in- 
crease in  the  productive  powers  of  land  make  it  easier  to  aug- 
ment still  further  its  capability  of  production?  Every  farmer 
will  tell  you,  no.  If  an  acre  of  land  which  formerly  yielded 
sixty  bushels  of  potatoes  is  carefully  improved  until  it  pro- 
duces eighty  bushels,  according  to  all  experience  it  will  not  be 
easier  to  raise  the  crop  from  eighty  to  one  hundred  bushels 
than  it  was  to  bring  it  up  to  eighty  from  sixty  bushels.  It  is 
not  difficult  to  prove  that  it  is  not  so  easy.  If  a  certain  amount 
of  care  and  labor  will  give  a  certain  yield,  e.g.  of  grain,  and 
doubling  that  care  and  labor  will  double  the  yield  and  if  three 
times  that  amount  of  care  and  labor  will  treble  the  yield,  and 
so  on,  it  is  evident  that  no  one  would  care  to  increase  the  size 
of  his  grain  farm.  If  this  were  not  true,  then  a  farmer  who 
might  be  raising  one  hundred  and  fifty  bushels  of  wheat  from 
five  acres,  but  who  might  wish  to  raise  fifteen  hundred 
bushels,  would  simply  be  obliged  to  expend  ten  times  the 
amount  of  care  and  labor  on  his  five  acres.  This  would  be 
cheaper  than  buying  forty-five  additional  acres  of  land,  for 
fifty  acres  of  land  would  require  more  work  than  the  five  had 
needed,  and  the  farmer  would  have  nothing  to  show  for  the 
money  used  in  buying  the  forty-five  acres.  But,  even  allowing 
that  it  is  just  as  easy  to  treble  the  original  produce  of  land  after 
it  has  been  doubled  as  it  was  to  double  it,  and  just  as  light  a 
task  to  quadruple  the  original  yield  as  it  was  to  treble  it  after 
it  had  been  doubled,  we  then  have  only  an  arithmetical  progres- 
sion. That  is  what  Malthus  meant  by  saying  that  food  can- 


200  ECONOMIC  THOUGHT 

not  possibly  be  made  to  increase  more  rapidly  than  in  an  arith- 
metical ratio.1 

2.  Diminishing  Returns.  —  This    clearly  implies   a   law    of 
diminishing  returns  from  land.     Malthus  says,  "  It  must  be 

\  evident  to  those  who  have  the  slightest  acquaintance  with 

\  agricultural   subjects,   that   in  proportion   as   cultivation    ex- 

1  tended,   the    additions    that    could   yearly  be    made    to    the 

former  average  produce  must  be  gradually  and  regularly  di- 

i  minishing."  2      And    elsewhere,    speaking    of     an    accidental, 

/  depopulation,  he  remarks :  "  The  diminished  numbers  would, 

of  course,  cultivate  principally  the  more  fertile  parts  of  their 

territory,  and  not  be  obliged,  as  in  their  more  populous  state, 

to  apply  to  ungrateful  soils."  3     "  When  acre  has  been  added 

to  acre  till  all  the  fertile  land  is  occupied,  the  yearly  increase 

of  food  must  depend  upon  the  melioration  of  the  land  already 

in  possession.     This  is  a  fund,  which,  from  the  nature  of  all 

soils,  instead  of  increasing  must  be  gradually  diminishing."  4 

The  law  was  not  stated  or  developed  by  Malthus  in  his  essay, 
however,  and  remained  with  him  as  a  tacit  assumption.  The 
first  of  the  two  preceding  quotations  suggests  that  he  had  in 
mind  an  average  diminution  and  lacked  the  machinery  of  the 
margin. 

3.  Checks  to  Population.  —  Such  being  the  nature  of  Malthus' 
teaching  as  to  the  relative  tendencies  of  population  and  food 
supply  to  increase,  it  remains  to  analyze  his  "  checks."     If  the 

1  Cannan  takes  Malthus  severely  to  task  on  the  basis  of  his  first  edition. 
This  seems  quite  unwarranted.    To  publish  a  series  of  parallel  and  coordi- 
nate criticisms  dealing  indiscriminately  with  statements  in  different  editions 
is,  especially  in  Malthus'  case,  unjust,  to  say  the  least. 

2  As  a  yearly  increase  this  implies  an  historical  "law"  rather  than  the 
accurate  statement  which  begins,  "at  any  given  stage  of  the  arts."     But 
elsewhere  Malthus  recognizes   that  agricultural  improvement  may  offset 
diminishing  returns.     His  error  lay  in  minimizing  the  extent  and  continuity 
of  such  improvement  and  that  in  transportation.     Cannan's  criticism  on 
this  point   (Production  and  Distribution,  p.  144)  seems  rather  superficial 
and  hypercritical.     The  whole  burden  of  Malthus'  argument  rests  on  a 
proportion  between  population  and  produce. 

3  2d  ed.,  p.  472.  4  5th  ed.,  pp.  o-io. 


MALTHUS  AND  THE  THEORY  OF  POPULATION         201 

cultivation  of  new  lands  and  emigration  do  not  afford  sufficient 
means  for  counteracting  the  evil  effects  of  the  natural  tendency 
of  man  to  increase  beyond  the  means  of  subsistence,  and 
Malthus  holds  this  to  be  the  fact,  what  prevents  overpopu- 
lation ?  The  ultimate  check  is  always  to  be  found  in  the  limi- 
tations on  subsistence  or  food  supply.  This  ultimate  check, 
however,  never  operates  directly  except  in  times  of  famine.1 
The  immediate  checks  include  all  diseases  due  to  scarcity  of 
subsistence,  and  all  causes  prematurely  weakening  the  body. 
For  conciseness'  sake  the  Malthusian  checks  may  be  tabulated 
thus : 2  — 

I.  Preventive ;  decreasing  births : 

1.  Moral  Restraint.     Postponement  of  marriage,  unaccom- 
panied by  irregular  gratification. 

2.  Vice.    Promiscuous  intercourse,  unnatural  passions,  vio- 
lations of  the  marriage  bed,  improper  acts.     (If  misery  results, 
these  are  of  a  "  mixed  nature,"  and  become  partly  positive  in 
action.) 

II.  Positive ;  resulting  in  shorter  life : 

3.  Misery. 

(a)  Wars  and  excesses  of  human  origin.     (As  of  human 

origin,  a  form  of  vice,  but  operating  positively.) 

(b)  Disease,  famine,  and  other  evils  arising  unavoidably 

from  the  laws  of  nature. 

In  his  list  of  positive  checks,  he  included  unwholesome  occu- 
pations, severe  labor,  extreme  poverty,  bad  nursing  of  children, 
city  life,  and  the  like. 

Social  Results :  the  Malthusian  Cycle.  —  Malthus  main- 
tained that  no  country  ever  had  existed  where  morals  and 
subsistence  were  such  that  population  had  been  able  to  mul- 
tiply with  perfect  freedom.  In  every  country  checks  were 
operative,  yet,  as  he  very  moderately  stated,  there  were  few 

1  5th  ed.,  I,  17. 

2  Bk.  I,  Chap.  II.     Malthus  himself  does  not  specifically  place  checks 
"of  a  mixed  nature"  anywhere  else  than  under  the  head  "positive  "  (sth 
ed.,  I,  22).    The  author  ventures  to  suggest  what  appears  to  be  the  logi- 
cal conclusion  in  the  bracketed  portions. 


202  ECONOMIC  THOUGHT 

states  in  which  population  did  not  constantly  "  strive  "  to  ex- 
ceed subsistence.  This  fact  constantly  tended  "  to  subject  the 
lower  classes  of  society  to  distress,  and  to  prevent  any  great 
permanent  melioration  of  their  conditions." 

In  the  generality  of  old  states,  Malthus  held,  there  existed 
an  oscillation  or  vibration  in  the  relation  between  population 
and  food.  Assuming  an  equilibrium  in  which  subsistence  is 
just  enough  for  the  easy  support  of  existing  population,  the 
order  of  precedence,  as  he  saw  it,  begins  with  an  "  effort  "  of 
population  to  increase.  Then  subsistence  becomes  more  di- 
vided. As  a  result,  the  number  of  poor  grows,  and  those 
already  poor  fall  into  deeper  poverty.  The  price  of  labor  falls, 
the  number  of  laborers  being  out  of  proportion  to  the  work 
in  the  market ;  the  price  of  provisions  tends  to  rise.  Then  the 
difficulties  of  rearing  a  family  discourage  marriage,  and  popu- 
lation is  brought  nearly  to  a  stand.  But  cultivators  are  mean- 
while induced  to  employ  more  labor,  and  at  last  subsistence  is 
brought  up  to  a  new  equilibrium.  Such  was  the  normal  and 
constantly  recurring  cycle.  Malthus,  however,  admits  that  it 
was  liable  to  irregularities  on  account  of  bad  crops,  new  manu- 
factures, greater  or  less  spirit  of  agricultural  enterprise,  and 
emigration. 

Malthus  himself  realized  that  the  operation  of  his  checks,  as 
developed  in  the  later  editions  of  his  work,  did  not  necessarily 
mean  great  suffering.  Speaking  of  the  preventive  check,  he 
said :  "If  this  restraint  do  not  produce  vice,  as  in  many  in- 
stances is  the  case,  ...  it  is  undoubtedly  the  least  evil  that 
can  arise  from  the  principle  of  population  ...  it  must  be 
.1  lowed  to  produce  a  certain  degree  of  temporary  unhappiness ; 
'mt  evidently  slight,  compared  with  the  evils  which  result  from 
any  of  the  other  checks  to  population."  1  Moreover  he  gives  a 
little  weight  to  emigration  and  considerable  to  agricultural  im- 
provement as  counterbalancing  the  retrogressive  tendency  for 
longer  or  shorter  periods  of  time.  Accordingly,  though  evil 
exists,  it  need  not  bring  despair,  but  activity.  "  When  it 
follows  in  its  natural  order,"  —  note  the  implications,  —  an 
1  Bk.  I,  Chap.  II,  2d  ed. 


MALTHUS  AND  THE  THEORY  OF  POPULATION      203 

increase  in  population  may  be  regarded  as  beneficial  and  neces- 
sary for  increasing  the  output  of  the  nation.  Malthus  con- 
sidered the  "  principle  of  population  "  as  necessary  to  stimulate 
men  to  industry  and  progress. 

But  what  "activity"  did  Malthus  suggest?  Not  that  of 
government  through  emigration,  industrial  supervision,  and  the 
like ;  but  purely  individual  action :  "  each  individual  has  the 
power  of  avoiding  the  evil  consequences  to  himself  and  society 
resulting  from  the  principle  of  population."  1  This  he  might 
do  by  abstaining  from  marriage  or  any  sexual  intercourse  until 
able  to  support  a  family.  A  major  point  in  Malthus'  theory 
was  the  idea  that  the  postponement  of  marriage  would  increase 
the  age  at  which  marriages  occur  and  reduce  the  number  of 
children  per  marriage.  And  in  an  ideal  society,  too,  no 
man  whose  earnings  were  only  sufficient  to  maintain  two  chil- 
dren "  would  put  himself  in  a  situation  "  in  which  he  might 
have  to  maintain  four  or  five.2 

Thus,  by  means  of  universal  foresight,  prudence,  and  virtu- 
ous abstinence,  "  all  squalid  poverty  would  be  removed  from 
society,  or,  at  least,  be  confined  to  a  very  few,  who  had  fallen 
into  misfortunes  against  which  no  prudence  or  foresight  could 
provide." 

Other  Economic  Views.3  —  In  brief  mention  of  the  more  im- 
portant and  characteristic  economic  views  held  by  Malthus,  his 
treatment  of  rent  and  the  interests  of  landlords,  of  overpro- 
duction, and  of  the  measure  of  value  should  be  noted.  As  will 

1  Appendix  to  sth  ed. 

2  Bk.  IV,  Chap.  II,  2d  ed. 
8  Other  writings :  — 

An  investigation  of  the  Cause  of  the  Present  High  Price  of  Provisions, 
containing  an  Illustration  of  the  Nature  and  Limits  of  Fair  Price  in  Times 
of  Scarcity.  3d  ed.,  1800. 

A  letter  to  Samuel  Whitehead  on  his  proposed  Bill  for  the  amendment  of 
the  Poor  Laws,  1807. 

Inquiry  into  the  Nature  and  Progress  of  Rent,  1815. 

On  the  Policy  of  Restricting  the  Importation  of  Corn,  1815. 

Political  Economy,  1820. 

The  Measure  of  Value,  1823. 

Definitions  in  Political  Economy,  1827, 


,/ 


204  ECONOMIC  THOUGHT 

appear  in  the  following  chapter,  he  differed  with  Ricardo  in 
regarding  rent  as  a  surplus  due  to  the  bounty  of  nature.  And 
a  chief  point  is  the  distinction  between  rent  and  monopoly 
return,  which  he  greatly  emphasizes.  Smith,  Say,  and  others 
at  points  speak  of  the  landlord  as  a  monopolist  reaping  where 
he  has  not  sown.  Malthus,  however,  takes  them  to  task. 
To  be  sure,  the  extent  of  the  earth  is  limited  and  there  is  a 
relative  scarcity  of  the  better  lands,  and  so  land  ownership 
might  be  referred  to  as  a  "  partial  monopoly."  l  But  for  three 
reasons  rent  differs  from  the  high  price  of  a  "  common  monopoly." 
first,  and  mainly,  there  is  the  quality  of  the  soil,  which  enables 
it  to  yield  a  surplus  over  the  amount  required  to  maintain  agri- 
cultural labor,  or  costs.  This  power  is  essential  to  rent,  but  is 
quite  unconnected  with  monopoly.  Secondly,  the  necessities 
of  life  which  land  yields  have  the  peculiar  quality,  when  properly 
distributed,  "  of  creating  their  own  demand,  or  of  raising  up  a 
number  of  demanders  in  proportion  to  the  quantity  of  neces- 
saries produced."  The  surplus  has  a  power  of  "  raising  up  a 
population  to  consume  it,"  and  in  this  is  fundamentally  dif- 
ferent from  any  other  machine.  Finally,  there  is  the  compara- 
tive  scarcity  of  fertile  land.  In  "  common  monopolies,"  then, 
there  is  an  "  excess  of  price  "  over  cost  due  to  an  external 
demand  and  depending  upon  the  degree  of  monopoly;  in  the 
case  of  land  the  excess  of  price,  or  rent,  "  depends  entirely  upon 
:  the  degree  of  fertility,  natural  or  acquired."  2 

(Accordingly,  Malthus  thought  the  interests  of  the  landlords 
were  not  in  conflict  with  those  of  society,  save  as  to  importa- 
tion. On  this  point  he  thought  them  not  separated  from  other 
producers,  apparently  forgetting  that  the  peculiar  significance  of 
land  and  the  produce  of  land  which  he  had  just  dwelt  upon 
might  make  a  difference.3 

As  to  overproduction,  Malthus  differed  with  the  majority  of 
his  contemporaries  in  believing  it  possible  as  a  general  condi- 
tion, his  moral  being  that  there  are  limits  to  parsimony  or 
saving.4  He  was  clearly  in  error.  His  discussion  of  the  point 

1  Political  Economy,  2d  ed.,  p.  140.       2  Ibid.  p.  147.       3  Ibid.  p.  206. 
1  Political  Economy,  2d  ed.,  Bk.  II,  Chap.  II,  §  3  (pp.  106  ff.)- 


MALTHUS   AND  THE  THEORY  OF  POPULATION        205 

consists  of  a  series  of  criticisms  on  the  reasoning  of  his  oppo- 
nents, Say  and  Ricardo,  the  windings  of  which  we  need  not 
follow.  Now  he  is  begging  the  question  by  assuming  a  fixed 
demand,  now  by  assuming  that  an  increase  in  demand  must 
precede  one  in  production,  and  ever  and  again  he  reasons  aside 
from  the  point  (general  glut)  by  limiting  the  number  of  com- 
modities in  his  illustrations.  The  service  of  such  objections  as 
these  has  been  to  prevent  carrying  the  general  over  to  the 
particular,  and  to  call  attention  to  the  friction  and  delay  often 
involved  in  the  working  out  of  economic  laws. 

In  his  first  edition  Malthus  took  a  mean  between  corn  and 
labor  as  his  measure  of  value.  This  he  finally  abandoned, 
accepting  Adam  Smith's  labor-exchange  measure.1  He  sug- 
gested dropping  the  term  "  value  in  use  " ;  distinguished  between 
measure  and  cause  rather  clearly;  and  affords  several  good 
illustrations  of  the  way  in  which  the  classicists  really  took 
utility  into  consideration,  though  without  elaborating  the  point 
(e.g.  Political  Economy,  p.  51). 

He  follows  Smith  in  retaining  the  distinction  between  pro- 
ductive and  unproductive  labor,  but  does  it  intelligently  and 
with  due  definition.  His  discussion  shows  clearly  the  semi- 
ethical  teleology  of  the  classical  economics.2 

In  addition  to  the  weakness  of  his  position  on  the  subject  of 
overproduction,  the  necessity  for  modifying  Malthus'  conclusion 
as  to  the  peculiar  power  of  an  agricultural  surplus  to  create  a 
demand  and  raise  up  a  population  is  not  to  be  overlooked. 
Certainly  the  products  of  manufactures  may  be  thought  of  as 
creating  a  demand  in  just  the  same  way  as  those  of  agriculture. 
Indeed,  a  difference  between  the  "  machine,"  land,  and  other 
machines  may  exist  in  this  regard  as  to  degree,  but  there  is 
none  in  kind,  save  that  which  may  arise  from  the  less  elasticity 
of  the  demand  for  food.  In  a  similar  way  Malthus'  optimistic 
notion  of  the  source  of  rent  is  one-sided,  and,  as  will  be  seen, 
Ricardo  took  the  other  side. 

Critical  Estimate  of  the  Malthusian  Doctrine.  —  Despite  the 
criticism  and  derogatory  estimate  of  his  contemporaries  and 

1  Political  Economy,  26.  ed.,  Preface,  and  pp.  98  f.         z  Ibid.  pp.  34  ff. 


206  ECONOMIC  THOUGHT 

followers,  Malthus'  claim  to  importance  as  an  original  thinker 
is  supported  by  most  of  the  best  present-day  thought.1 

But  his  errors  are  not  few.  Taking  his  most  careful  state- 
ment of  the  three  factors  in  his  problem  separately,  and  consider- 
ing them  only  as  tendencies  in  the  sense  that  they  would  be  true 
if  not  interfered  with,  they  stand.  But  Malthus  sometimes 
puts  them  together  and  so  states  them  that  their  character  as 
mere  potential  tendencies  is  lost.  Thus  with  the  tendency  of 
population  to  increase.  The  undoubted  strain  of  pessimism 
his  work  holds  led  him  to  underrate  the  future  development 
of  education  and  prudence.  The  power  of  a  standard  of  living 
above  subsistence  is  overlooked.  Putting  the  ideas  of  checks 
and  rate  of  increase  together,  and  easily  falling  into  too  positive 
statement,  the  limitations  and  abstractions  are  forgotten.  He 
knew  what  had  happened;  he  saw  what  was  happening;  but, 
influenced  by  his  surroundings,  his  vision  as  to  what  was  to 
happen  was  unduly  obscured. 

It  is  difficult  to  determine  to  what  extent  this  indicates  a  serious 
limitation  of  his  powers,  and  consequently  is  an  adverse  criti- 
cism. It  would  appear  most  just  simply  to  hold  that,  lacking 
later  data,  he  was  not  in  as  good  a  position  as  are  we  to  judge 
of  the  efficiency  of  moral  restraint. 

It  has  been  suggested,  too,  that  Malthus  failed  to  distinguish 
between  the  desire  for  offspring,  on  the  one  hand,  and  that  for 
sexual  gratification,  on  the  other.  If  the  "  passion  between  the 
sexes  "  to  which  he  refers  should  solely  or  chiefly  concern  the 
latter  desire,  it  might  remain  virtually  unchecked  without  in- 
crease in  population.  It  might  be  considered  as  a  given  quan- 
t'ty  without  fearing  overpopulation.  This  is  evidenced  by  the 
low  birth  rate,  small  average  family,  and  almost  stationary 
population  of  France  to-day.  It  must  not  be  forgotten,  how- 
ever, that  the  application  of  this  criticism  may  vary  accordingly 
as  we  define  the  term  "  vice  "  under  the  preventive  checks. 
Malthus'  definition  of  "vice  "  was  a  broad  one,  and  would  largely 

1  Those  inclined  to  belittle  are  Ingram  and  Cannan,  for  instance ;  while, 
on  the  other  hand,  Cossa,  Marshall,  Ely,  Patten,  Bonar,  Price,  Cohn,  and 
Carver  are  among  those  attaching  great  importance  to  his  thought. 


MALTHUS   AND  THE  THEORY  OF  POPULATION       207 

cover  the  case  suggested  in  this  criticism.  Indeed,  he  specifically 
states  that  "if  we  consider  only  the  general  term  [preventive 
check]  which  implies  principally  a  delay  of  the  marriage  union 
from  prudential  considerations,  without  reference  to  [moral] 
consequences,  it  may  be  considered  in  this  light  as  the  most 
powerful  of  the  checks,  which  in  modern  Europe  keep  down  the 
population  to  the  level  of  the  means  of  subsistence."1 

Again,  though  this  is  not  essential  to  his  thesis,  he  has  been 
criticized  for  a  lack  of  breadth  and  foresight  in  his  view  of  the 
possibilities  of  increased  subsistence  through  improvements  in 
agricultural  science  and  transportation.  Here,  however,  it  is 
easy  to  overlook  the  fact  that  he  said  that  subsistence  might  in- 
crease indefinitely,  and  that  his  argument  had  as  its  essential 
merely  a  different  rate  of  increase  as  compared  with  population. 
On  this  particular  point,  if  more  attention  had  been  given  to  his 
ratio,  and  less  to  his  separate  rates,  there  would  have  been  less 
misunderstanding  in  this  regard. 

Finally,  when  he  puts  his  rates  of  increase  in  population  and 
produce  together,  the  fact  that  his  idea  of  diminishing  returns 
was  limited,  appears.  While  his  idea  is  substantially  correct, 
"  he  does  not  lay  stress,  at  any  rate  with  sufficient  explicitness, 
on  the  limiting  conditions  of  its  application  to  fact."  :  He  does 
not  appreciate  to  the  full  the  possible  effects  of  an  increase  in 
population  in  maintaining  or  swelling  the  rate  of  increase  in  / 
subsistence. 

In  these  matters  Malthus  made  too  much  of  not  being  able 
to  judge  of  the  future  except  by  the  past.3  There  is  a  sense  in 
which  this  is  true,  but  such  an  attitude  may  lead  to  undue  nar- 
rowness of  view.  In  a  word,  to  the  extent  that  Malthus  gave 
ground  for  thinking  the  law  of  diminishing  returns  an  historical 
one,  he  was  wrong.  This  is  true,  on  the  whole,  of  his  first  edition, 
alone.  In  the  later  ones  he  lapses  into  similar  statements,  but 
more  and  more  guards  himself. 

His  effort  to  attain  a  concise  and  forcible  statement  may  be 
considered  a  factor  in  the  misunderstanding  of  his  doctrine. 

1  5th  ed.,  II,  218.  2  Price,  Political  Economy  in  England,  p.  49. 

s  See,  e.g.,  Appendix  to  3d  ed. 


208  ECONOMIC  THOUGHT 

As  one  of  the  most  important  of  Malthus'  services  the  fact  is 
to  be  mentioned  that  he  was  the  first  to  devote  a  treatise  to  the 
principle  of  population.  Thus  he  deserves  great  consideration 
for  calling  attention  to  the  economic  significance  of  an  important 
subject  which  had  been  neglected.  He  gave  the  problem  a 
definiteness  and  distinctness  which  made  its  significance  tan- 
gible. 

The  Malthusian  theory  is  important  from  the  fact  that  it  was 
partly  instrumental  in  leading  Darwin  to  his  doctrine  of  Natural 
Selection.  Darwin  himself  has  said  that  his  theory  of  the  strug- 
gle for  existence  was  only  "  the  doctrine  of  Malthus  applied 
with  manifold  force  to  the  whole  animal  kingdom." 

Furthermore,  Malthus  collected  a  mass  of  valuable  facts  illustra- 
tive of  his  doctrine.  These  were  important  as  showing  the  effects 
of  various  checks  and  stimuli,  —  emigration,  poor  laws,  various 
customs.  They  influenced  legislation,  on  the  one  hand,  and  on 
the  other,  they  give  him  a  claim  to  a  place  among  the  founders 
of  historical  economics.1 

The  Malthusian  theory  is  especially  essential  to  an  under- 
standing of  the  problems  of  social  reform.  Thus  John  Stuart 
Mill  was  prevented  from  unreservedly  advocating  governmental 
interference  with  wages,  of  a  highly  Socialistic  character,  only 
by  his  belief  in  the  theory  of  population  which  Malthus  taught. 
If  the  difficulties  Malthus  saw  are  real,  they  must  be  reckoned 
with.  If  they  are  not,  and  the  Malthusian  doctrine  is  to  be 
rejected,  some  other  theory  must  be  produced  which  will  better 
explain  the  facts  upon  which  Malthus  based  his  reasoning,  and 
which  others  have  confirmed.  The  economist  cannot  go  far 
without  recognizing  the  tendencies  with  which  Malthus  dealt; 
and  those  attempts  to  solve  the  social  problem  which  run  coun- 
ter to  the  principle  of  population  must  ultimately  fail. 

1  Marshall,  Principles  of  Economics,  4th  ed.,  p.  256,  note. 


MALTHUS  AND  THE  THEORY  OF  POPULATION       209 

BIBLIOGRAPHICAL  NOTE  ON  EARLY  ENGLISH  CONTROVERSIES   CON- 
CERNING THE  POPULATION  QUESTION  (1803-1833) 

Malthus'  essay  provoked  much  discussion,  and  numerous  works  were 

put  forth  attacking  his  thesis,  while  others  rallied  to  its  defense. 

There  were  "anti-populationists"  or  "subsistencians"  (followers  of 

Malthus),  and  "populationists"  (his  opponents).     Some  of  the  books 

of  the  day  were  as  follows :  — 

1806 :  Jarrold  (T.),  Dissertations  on  Man,  Philosophical,  Physiological, 
and  Political;  in  answer  to  Mr.  Malthus1  s  "Essay  on  the  Principle 
of  Population."  The  thought  is  optimistic,  upholding  Godwin, 
and  proceeding  from  theological  premises.  Malthus'  checks  are 
held  to  "arise  out  of  circumstances  that  are  perfectly  optional, 
and  are  most  experienced  under  a  bad  system  of  government" 
(361).  The  most  interesting  point  is  his  idea  that  anxiety  and 
care  lead  to  the  extinction  of  those  affected. 

1807  :  Hazlitt  (Wm.),  A  Reply  to  the  Essay  on  Population  in  a  Series 
of  Letters.  Published  anonymously.  This  work  argued  that 
there  is  no  limit  to  subsistence  until  the  earth's  surface  shall  be 
occupied  and  intensive  culture  resorted  to. 

1815:  Gray,  Happiness  of  States.  "In  all  ordinary  circumstances 
population  has  a  tendency  to  increase,  but  not  to  over-increase ; 
for  this  increase  carries  in  itself  the  power  of  fully  supplying  its 
various  wants."  Population  regulates  subsistence. 

1816:  Weyland  (John),  The  Principles  of  Population  and  Production, 
as  they  are  affected  by  the  Progress  of  Society;  with  a  view  to  moral 
and  political  consequences.  Argues  from  theological  premises,  the 
Malthusian  principle  running  counter  to  the  idea  of  a  benevolent 
creator  (p.  6).  The  natural  tendency  of  population  varies  with 
the  state  of  society.  Naturally,  it  tends  to  keep  within  the  limits 
set  by  the  powers  of  the  soil,  only  exceeding  them  through  im- 
politic laws  and  customs.  Some  measure  of  excess  is  beneficial, 
as  it  stimulates  progress. 

1816  :  Grahame  (James),  An  Inquiry  into  the  Principle  of  Population, 
including  an  exposition  of  the  causes  and  the  advantages  of  a  ten- 
dency to  exuberance  of  numbers  in  society. 

1818:  Purves  (G.),  The  Principles  of  Population  and  Production  inves- 
tigated; and  the  Questions,  does  Population  regulate  Subsistence,  or 
Subsistence  Population  .  .  .  discussed.  "The  notion  of  a  con- 
stant tendency  in  subsistence  to  increase  less  rapidly  than  popula- 
p 


210  ECONOMIC  THOUGHT 

tion,  and  consequently  to  check  the  latter  by  scarcity,  is  a  wild  fancy, 
utterly  unknown  to  nature,  and  in  as  direct  opposition  to  the 
results  of  her  arrangements,  as  any  such  tendency  in  clothing, 
building,  or  any  other  division  of  the  supply"  (68).  He  follows 
Gray.1  Scantiness  of  subsistence  tends  to  increase  births,  super- 
fluity to  diminish  them.  Abundance  of  untouched  means  exist- 
ing in  old  countries  refutes  Malthus.  Population  has  no  natural 
ratio  of  increase,  when  compared  with  time.  While  the  ratio  of 
increase  of  subsistence  is  impressed  upon  it  by  the  cultivator. 

1818:  Ensor  (George),  An  Inquiry  concerning  the  Population  of  Na- 
tions, containing  a  refutation  of  Mr.  Malthus' 's  Essay  on  Population. 
Advocates  political  reforms  as  the  remedy. 

1820:  Godwin  (Wm.),  Essay  on  Population.  Contains  an  essay  by 
Booth  on  Malthus'  ratios,  which  purports  to  refute  Malthus'  use 
of  ratios  of  increase.  Malthus'  American  statistics  are  criticized. 
Godwin  argued  that  history  shows  population  has  not  decreased 
in  many  states ;  and  that  in  Sweden,  where-  conditions  are  favor- 
able, population  doubles  but  once  in  100  years.  Each  new 
improvement  makes  a  new  start  by  placing  population  and  sub- 
sistence rates  on  a  new  level  of  equality.  Any  excess  of  popula- 
tion comes  in  the  shape  of  infants,  which  serves  as  a  warning  and 
enables  adaptation.  Moreover,  each  man  has  within  him  the 
power  to  produce  more  than  enough  for  his  subsistence.  He  lays 
any  suffering  due  to  overpopulation  at  the  door  of  political  facts. 

1821 :  Ravenstone  (P.),  A  Few  Doubts  as  to  the  Correctness  of  Some 
Opinions  Generally  Entertained  on  the  Subjects  of  Population  and 
Political  Economy.  The  tendency  of  population  to  increase  is 
nearly  equal  in  all  times  and  places,  and  is  not  so  rapid  as  Malthus 
thinks.  No  restrictive  measures  are  needed,  for  subsistence 
depends  upon  numbers.  In  arguing  that  rates  of  increase  are 
independent  of  social  institutions  he  also  undertakes  to  refute 
Godwin's  arguments. 

1822 :  Place  (Francis),  Illustrations  and  Proofs  of  the  Principle  of 
Population :  including  an  examination  of  the  proposed  remedies  of 
Mr.  Malthus,  and  a  reply  to  the  objections  of  Mr.  Godwin  and  others. 
Through  a  study  of  immigration  to  America  Malthus'  conclusions 
as  to  the  rate  of  increase  in  population  in  that  country  are  sub- 
stantiated. Place  himself  emphasizes  education  as  a  remedy. 

*  Purve?  was  Gray's  nom  de  plume  t 


MALTHUS  AND  THE  THEORY  OF  POPULATION        211 

1823  :  Everett  (A.  H.),  New  Ideas  on  Population.  Increase  in  popula- 
tion brings  its  own  remedy  in  increased  productivity  through 
division  of  labor  and  increased  skill. 

1830:  Sadler  (Michael  T.),  The  Law  of  Population;  a  Treatise  in  Six 
Books  ;  in  disproof  of  the  superfecundity  of  human  beings,  and 
developing  the  real  principle  of  their  increase.  Attempts  a  refuta- 
tion of  Mai  thus  by  statistics.  Theological  premises.  His  "law" 
was  that  prolificness  varies  inversely  with  numbers,  the  control- 
ling force  being  space,  modified  by  the  character  of  the  land. 

1831 :  Senior  (Wm.  N.),  Two  Lectures  on  Population  (Oxford). 
Senior  upholds  Mai  thus.  He  emphasizes  security,  freedom  of  inter- 
nal and  external  trade,  equal  social  and  industrial  opportunity, 
and  education.  "These  are  propositions  which  Mr.  Mai  thus  has 
established  by  facts  and  reasonings,  which,  opposed  as  they  were 
to  long-rooted  prejudices,  and  assailed  by  every  species  of  sophis- 
try and  clamour,  are  now  so  generally  admitted,  that  they  have 
become  rather  matters  of  allusion  than  of  formal  statement " 
(p.  50).  Senior  appends  letters  from  Mai  thus  explaining  that 
by  "tendency"  he  does  not  necessarily  mean  an  actuality. 

1832  :  Anonymous,  An  Enquiry  into  the  Principles  of  Population,  ex- 
hibiting a  system  of  regulations  for  the  Poor,  designed  immediately  to 
lessen  and  finally  to  remove  the  evils  which  have  hitherto  pressed 
upon  the  Labouring  classes  in  Society.  Better  adjustment  of  labor 
needed.  Possibilities  of  chemistry  in  producing  subsistence  noted. 

1832  :  Owen  (Robt.),  Moral  Physiology,  A  Brief  and  plain  Treatise  on 
the    Population    Question.     "  Neo-Malthusian "  —  artificial    re- 
striction of  size  of  families. 

1833  :  Lloyd  (W.  F.),  Two  lectures  on  the  checks  to  populations, 

For  Carey's  criticism  see  below,  page  245.  For  those  of  Sismondi 
and  Messedaglia,  see  pages  309,  487  f.  The  discussion  was  also  carried 
on  in  other  countries.  Most  of  the  criticism  of  Malthus  was  either 
beside  the  point,  because  his  critics  did  not  understand  his  principle 
with  its  several  limitations  and  qualifications,  or  was  vitiated  by 
irrational  theological  premises. 


CHAPTER   XII 

RICARDO    AND    THE    THEORY    OF    DISTRIBUTION, 
ESPECIALLY    THE    RENT    DOCTRINE 

Life  and  Circumstances ;  Chief  Writings.  —  David  Ricardo 
was  born  in  1772,  in  England.  His  father,  a  Hebrew  immi- 
grant from  Holland,  was  then  a  member  of  the  London  Stock 
Exchange.  His  ancestors  were  Portuguese  Jews,  a  remarkable 
branch  of  a  remarkable  race.  Spinoza,  the  philosopher,  and 
Isaac  Pinto,  a  publicist,  came  from  the  same  stock.  The  boy 
received  some  commercial  education,  and  at  fourteen  began 
his  acquaintance  with  the  Exchange. 

Becoming  involved  in  religious  difficulties,  he  finally  em- 
braced Christianity,  and  was  cast  off  by  his  father.  At  twenty- 
one  he  began  business  on  his  own  account,  became  a  member 
of  the  Stock  Exchange,  and  at  twenty-five  had  already  acquired 
a  fortune.  Coolness,  good  judgment,  surprising  quickness  at 
figures  and  calculation,  and  a  great  capacity  for  work  were 
factors  in  his  success. 

Having  acquired  a  competence,  Ricardo  began  to  interest 
himself  in  science.  He  first  took  up  mathematics,  chemistry, 
and  geology;  but,  in  1799,  his  attention  having  been  drawn  to 
economic  studies  by  a  perusal  of  the  Wealth  of  Nations,  he  came 
to  devote  himself  chiefly  to  political  economy. 

His  first  publication  was  a  tract  entitled  The  High  Price  oj 
Bullion  a  Proof  of  the  Depreciation  of  Bank  Notes.  Appearing 
early  in  1810,  it  passed  through  four  editions  in  two  years,  and  its 

1  On  Ricardo  and  his  work,  cf.  American  Economic  Association  Papers, 
1911  (Proceedings  of  Annual  Meeting,  St.  Louis,  1910);  Diehl,  David 
Ricardo's  Grundsatze  der  Volkswirthschaft  und  Besteurung  (Leipzig,  1905), 
and  the  following  footnote  references. 

212 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION     213 

principles  were  adopted  in  the  Report  of  the  Bullion  Committee. 
When  Mr.  Bosanquet,  a  prominent  merchant,  criticized  these 
principles,  Ricardo  was  induced,  in  1811,  to  write  a  Reply  to 
Mr.  Bosanquet's  Practical  Observations  on  the  Report  of  the 
Bullion  Committee.  This  reply  is  called  by  M'Culloch  "  one 
of  the  best  essays  that  have  appeared  on  any  disputed  question 
of  political  economy."  It  was  followed  by  two  tracts  or  essays : 
Essay  on  the  Influence  of  a  Low  Price  of  Corn  on  the  Profits  of 
Stock  (1815),  and  Proposals  for  an  Economical  and  Secure  Cur- 
rency (1816). 

In  1817  he  published  his  chief  work,  On  the  Principles  of 
Political  Economy  and  Taxation.  Although  it  made  a  real  epoch 
in  economic  thought,  it  was  only  with  great  reluctance  and  after 
considerable  persuasion  on  the  part  of  his  friends  that  he  con- 
sented to  bring  it  before  the  public.  He  had  already  acquired 
some  reputation,  and  it  has  been  said  that  he  feared  this  work 
would  not  sustain  it.  If  this  was  the  case,  he  was  most  happily 
disappointed.  A  second  edition  appeared  in  1819,  and  a  third 
in  1821. 

His  other  important  economic  publications  were  "  The  Funding 
System,"  an  article  contributed  to  the  Encyclopaedia  Britannica 
in  1820,  and  a  pamphlet  on  Protection  to  Agriculture.  It  ap- 
peared in  1822, and  is  called  by  M'Culloch,  who  was,  of  course,  a 
warm  admirer,  "  the  best  of  all  his  pamphlets  and  indeed  a 
'  chef-d'ceuvre.'  '  M'Culloch  adds,  "  Had  Mr.  Ricardo  never 
written  anything  else,  this  pamphlet  would  have  placed  him  in 
the  first  rank  of  political  economists." 

A  manuscript  describing  a  Plan  for  the  Establishment  of  a 
National  Bank  was  published  after  Ricardo's  death,  which 
occurred  'in  1823. 

Ricardo  was  for  some  time  a  member  of  the  House  of  Com- 
mons, to  which  he  was  elected  in  1819,  to  represent  Portarling- 
ton.  He  was  an  independent  in  politics,  but  was  generally 
found  on  the  side  of  progress  and  reform.  He  did  not,  however, 
take  as  active  a  part  in  Parliament  as  might  have  been  expected. 
He  never  spoke  upon  any  subject  to  which  he  had  not  given  long 
and  careful  study,  and  was  regarded  as  an  authority  by  many, 


214  ECONOMIC  THOUGHT 

his  opinions  being  highly  valued.  Lord  Brougham  describes 
him  as  a  persuasive  speaker  on  account  of  the  apparent  sincerity 
and  purity  of  his  motives  and  by  reason  of  the  clearness  and 
force  of  his  arguments. 

In  his  private  relations,  he  was  kind  and  charitable,  and  made 
a  generous  use  of  his  wealth.  Besides  responding  largely  to 
appeals  made  in  behalf  of  other  institutions,  he  supported  en- 
tirely out  of  his  own  pocket  two  schools  and  an  almshouse. 

Some  of  the  differences  between  the  industrial  environment 
of  Adam  Smith  and  that  of  his  followers  have  been  touched 
upon  in  the  chapter  on  Malthus.  There  the  growth  of  popu- 
lation and  attendant  poverty  were  noted.  In  connection  with 
Ricardo  and  his  time,  it  is  particularly  noteworthy  that  there 
had  come  a  completer  working  out  of  the  results  of  the  Indus- 
trial Revolution,  and  a  rise  in  grain  prices,  accompanied  by  a 
resort  to  poorer  soils  and  higher  rents.  The  first  factor  meant 
a  more  capitalistic  industry.  Old  restrictions  and  regulations 
became  obsolete  and  began  to  be  repealed,  and  for  a  time  com- 
petition was  given  nearly  full  sway.  Old  labor  laws  were  re- 
pealed, and  the  trade-union  problem  grew  apace.  The  rise  of 
new  industries,  the  expansion  of  trade,  the  Napoleonic  wars, 
begot  change  and  mobility  which  were  notable  in  contrast  with 
the  past.  At  the  same  time,  rising  prices  for  food  brought  on 
corn  law  discussions,  and  the  manufacturing  classes,  desiring 
cheap  food  for  cheap  labor,  were  arrayed  against  the  landowners. 

In  such  an  atmosphere,  the  question  of  the  distribution  of 
wealth  could  hardly  sleep.  What  was  the  cause  and  what  the 
remedy  for  high  food  prices  and  rents?  How  should  wages  be 
determined,  and  what  would  be  the  effect  of  labor  organization  ? 
Upon  what  class  should  taxes  rest  ?  How  would  all  these  ques- 
tions affect  the  profits  of  the  capitalist  class?  Such  were  the 
problems  of  the  day.  The  economist  can  see  now  that  the 
time  was  pregnant  with  a  theory  of  distribution,  which,  assuming 
competition,  would  center  round  the  margin  of  land  cultivation. 
In  the  hands  of  a  thinker  like  Ricardo,  a  Jew  and  a  man  of  the 
Stock  Exchange,  such  a  theory  would  be  given  an  abstract  and 
absolute  setting. 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION      215 

The  Principles  of  Political  Economy.  —  Value.  —  In  the  first 
line  of  his  first  chapter,  Ricardo  quotes  Adam  Smith,  and 
proceeds  to  follow  him  in  distinguishing  value  in  use  from 
value  in  exchange.  The  latter  is  the  value  treated  in  politi- 
cal economy.  Utility  is  not  the  measure  (determinant)  of 
"  exchangeable  "  value,  though  it  is  "  absolutely  essential  to 
it."  Natural  value  is  distinguished  from  that  of  the  market, 
being  not  temporary  and  fluctuating,  as  the  latter,  but  that 
which  would  exist  if  there  were  no  disturbance.  It  is  always 
of  this  "  natural  "  or  normal  value  that  Ricardo  speaks.  Thus 
far,  then,  Ricardo  follows  Smith. 

Assuming  their  utility,1  he  next  divides  commodities  which 
have  an  exchange  value  into  two  classes :  those  which  derive  it 
from  scarcity,  and  those  which  derive  it  from  the  quantity  of 
labor]  required  to  obtain  them.  A  picture  by  Raphael  would 
belong  to  the  first  class.  Its  value  would  be  altogether  irre- 
spective of  the  labor  it  had  cost,  and  would  depend  only  on 
what  people  could  or  would  give.  The  class  is,  however,  so 
limited  in  extent  that  Ricardo  leaves  it  out  of  consideration,  and 
devotes  his  attention  to  commodities  of  the  second  class :  those 
which  are  "  procured  by  labour  "  and  which  may  be  multiplied 
according  to  desire  "  without  any  assignable  limit." 
/Adam  Smith  had  explained  that  in  the  early  stages  of  society 
preceding  the  appropriation  of  land  and  accumulation  of  capital, 
the  relative  values  of  such  things  depended  upon  the  quantities 
of  labor  expended  in  procuring  them.  In  this  Ricardo  agrees 
with  Smith,  but  differs  in  maintaining  that  even  after  land  has 
been  appropriated  and  capital  applied  to  industry,2  relative 
values  depend  upon  the  quantities  of  labor  required,  the  same 
as  before.^  In  our  present  social  organization,  Smith  thought 
that  other  elements  than  labor  affect  the  comparative  value  of 
commodities ;  he  found  it  influenced  by  wages,  profits,  and  rent. 

1  Ricardo  said  utility  is  "absolutely  essential,"  but  saw  in  it  no  means  of 
measuring  or  determining  values.     To  him,  an  analysis  of  sellers'  costs  was 
most  important.     He  had  no  distinct  concept  of  marginal  utility. 

2  Indeed,  Ricardo  taught  that  capital  of  some  sort  had  cooperated  with 
labor  from  earliest  times. 


2l6  ECONOMIC  THOUGHT 

But  Ricardo  maintained  that  wages,  profits,  and  rent  exercise 
no  influence  on  normal  relative  or  exchange  values. 

Profits  are  equalized  in  all  industries,  Ricardo  held,  and  hence 
could  not  affect  relative  values;  while  rent  is  a  result,  not  a 
cause,  of  values. 

i  Wages  do  not  affect  general  relative  values,  because  they, 
like  profits,  are  the  same  in  different  employments.  Perfect 
competition  is  assumed,  with  the  corollary  that  the  same  price 
is  paid  for  the  same  kind  of  labor  by  all  employers.  So  long 
as  A  and  B  pay  the  same  sum  for  a  day's  work  of  the  same 
kind,  it  is  manifestly  indifferent  whether  the  sum  be  $i  or  $10 : 
both  are  affected  alike  by  the  rate  of  wages. 

But  if  I  offer  to  exchange  with  you  a  commodity  on  which 
five  days'  labor  has  been  expended  for  one  which  required  ten 
days'  labor,  you  will  object  that  the  commodity  I  offer  is  worth 
only  half  yours,  because  it  cost  but  half  the  labor.  Difference 
in  quantity  of  labor,  then,  causes  difference  in  value. 

In  this  conclusion  Ricardo  takes  some  account  of  different 
qualities  of  labor ;  but  argues  with  much  obscurity  that  "  the 
estimation  in  which  different  qualities  of  labour  are  held  comes 
soon  to  be  adjusted  in  the  market,"  while,  in  case  the  same 
commodity  is  concerned,  he  assumes  that  variations  in  quality 
of  labor  between  different  times  may  be  disregarded,  —  a  ques- 
tionable assumption.1  This  much  can  be  said :  Ricardo  recog- 
nized that  in  comparing  quantities  of  labor  time,  allowance  must 
be  made  for  difference  in  intensity  and  skill.  His  mistake  lies 
in  the  extreme  and  impractical  abstractness  of  an  assumption 
of  equality  of  labor,2  a  mistake  which  was  later  to  be  made 
the  basis  for  a  theory  of  value  by  the  Socialists. 

What  has  been  said  of  labor  in  general  applies  equally  to  the 
labor  employed  in  the  production  of  capital.  That  is,  capital 
is  apparently  reduced  to  stored-up  labor.  The  "exchangeable  " 
value  of  commodities  in  modern  society,  then,  is  in  proportion 

1  Cf.  Whittaker,  Labor  Theory  of  Value,  Columbia  University  Studies, 
XEX,  No.  2,  pp.  47  f. 

2  See  Jevons'  criticism,  Theory  of  Political  Economy  (1871),  p.  160.     Cf. 
the  criticism  of  Marx,  below,  p.  389. 


RICAKDO  AND  THE  THEORY  OF  DISTRIBUTION      217 

to  the  labor  spent  not  only  on  their  immediate  production,  "  but 
on  all  those  implements  or  machines  required  to  give  effect  to  the 
particular  labour  to  which  they  were  applied."  And  a  closely 
related  modification  is  the  conclusion  that  difference  in  durability 
of  capital  may  also  allow  value  changes,  quantities  of  labor  being 
equal.  Such  differences,  by  introducing  a  varying  time  ele- 
ment, make  it  possible  for  changes  in  wages  and  profits  to  affect 
costs  in  different  industries  unequally,  and  therefore  to  affect 
relative  values.  The  less  durable  fixed  capital  approaches  the 
nature  of  circulating  capital.  If  the  machine,  for  example, 
is  very  durable,  the  value  of  its  product  will  be  less  affected  by 
changes  in  wages  and  profits  than  one  which  soon  has  to  be 
replaced.1 

In  a  word,  in  treating  of  the  results  of  the  introduction  of 
machinery,  etc.,  even  though  regarding  it  as  "  canned  "  or 
"  petrified "  labor,  Ricardo  admits  that  his  assumption  of 
equalized  wages  and  profits  breaks  down,  and  with  it  goes  the 
argument  against  the  entrance  of  wages  and  profit  into  values. 

It  might  thus  seem  that  Ricardo,  taking  a  step  which  Smith's 
common  sense  had  shunned,  and  following  along  the  road  indi- 
cated notably  by  certain  Mercantilists,2  had  adopted  a  pure 
labor-cost  theory  of  value.  Such  was  doubtless  his  tendency. 
He  was  compelled,  however,  to  introduce  several  modifications, 
and  finally  to  abandon  this  theory  in  its  purity. 

While  the  mere  introduction  of  capital  does  not  affect  relative 
values,  according  to  Ricardo  the  existence  of  differences  in  the 
proportion  of  fixed  and  circulating  capital  in  different  industries 
does  affect  relative  values  and  modify  his  labor-cost  theory.3 

Considering  all  modifications  and  utterances   in   his    corre- 

1  Chap.  I,  §  5.     For  good  discussion  of  this  matter  see  Whittaker,  His- 
tory and  Criticism  of  the  Labor  Theory  of    Value,  Columbia  University 
Studies,  XIX,  No.  2,  pp.  52-56. 

2  See  above,  p.  100. 

3  Chap.  I,  §  3.     A  rise  in  the  wage  rate  would  bring  a  fall  in  the  interest 
•rate.     At  the  lower  interest  rate,  fixed  capital  represents  the  present  value 

of  a  smaller  annuity.  Fixed  capital,  then,  could  be  replaced  more  cheaply. 
Under  perfect  competition  the  value  of  its  product  falls,  and  the  more  fixed 
capital  in  proportion  to  circulating,  the  greater  the  fall. 


2l8  ECONOMIC  THOUGHT 

spondence,  the  most  just  way  to  put  Ricardo's  doctrine,  then,  is 
as  follows :  assuming  perfect  competition,  and  considering  only 
those  commodities  which  can  be  indefinitely  increased,  the  quan- 
tity of  labor  involved  makes  the  only  practicable  basis  for  com- 
paring normal  values.  The  idea  of  mere  labor  quantity,  how- 
ever, is  somehow  to  be  modified  by  recognizing  the  qualitative 
element,  skill  and  intensity  being  considered.  While  normal 
value  does  not  equal  labor  cost,  the  entrepreneur's  expenses  are 
substantially  proportionate  to  the  quantity  of  labor  he  uses. 
The  payment  of  interest  of  different  rates  causes  an  almost  neg- 
ligible variation.  He  had  great  misgivings  concerning  his  value 
theory ; l  but  held  to  it  to  the  end. 

Ricardo  seems  to  have  thought  an  unvarying  standard  or 
measure  of  value  very  desirable,  but  deemed  it  impossible ;  for 
he  believed  that  there  is  no  commodity  which  requires  an  un- 
changing quantity  of  labor  for  its  production.  If  there  were, 
differences  in  the  periods  for  which  capitals  are  advanced  would 
invalidate  it.  But  he  found  so  little  change  in  gold  and  silver 
that  he  took  money  to  be  stable  enough  in  its  value  for  ordinary 
purposes.  Toward  the  end  of  his  career  he  more  and  more  argued 
for  the  substantial  validity  of  such  a  standard.2 

Finally,  hi  a  note  to  the  third  edition  of  his  Principles,  page  46, 
he  virtually  admits  that  profits  —  that  is,  interest  —  is  a  cost  of 
production.  And  in  various  letters  to  economist  friends,  he  shows 
the  same  admission  in  more  or  less  explicit  form.  To  Malthus, 
who  combated  his  theory,  he  confessed  that  it  was  not  strictly 
accurate,  but  maintained  that  so  far  as  he  could  see  it  came  near- 
est the  truth,  as  a  measure  of  exchange  value ;  while  he  wrote 
to  M'Culloch,  who  believed  as  he  did,  that  he  often  thought 
that  were  he  to  rewrite  his  chapter  on  value  he  would  admit  two 
factors :  the  quantity  of  labor,  and  the  rate  of  profit  which  ex- 
isted during  the  round  of  production. 

Distribution.  —  The  whole  Ricardian  scheme  of  distribution 
is  put  in  a  nutshell  in  his  own  words,  thus :  "  Profits  depend  on 

1  Letters  of  Ricardo  to  M'CMoch,  p.  132. 

2  Hollander,  "  Development  of  Ricardo's  Theory  of  Value,"  Quart.  Jr. 
Econ.  XVIII. 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION      219 

high  or  low  wages,  wages  on  the  price  of  necessaries,  and  the 
price  of  necessaries  chiefly  on  the  price  of  food."  1  The  exchange 
value  of  food  depends  on  the  labor  cost  of  producing  it  at  the 
margin ;  in  the  long  run  wages  tend  toward  a  minimum  set  by 
this  exchange  value  of  food.  Profits  get  the  remainder  of  the 
marginal  product.  But  wages  and  profits  are  equalized  by  com- 
petition. On  more  productive  land,  then,  rent  arises.  Thus  is 
the  total  product  of  industry  distributed. 

How  then  are  the  various  shares  determined? 

Rent.  —  Ricardo's  whole  theory  of  distribution,  including 
value,  was  inseparably  bound  up  with  the  land  factor  and  its 
margin  of  cultivation.  He  was  not  the  first  to  have  some  idea  of 
rent  as  a  differential  return.  He  was  not  the  first  to  have  some 
understanding  of  diminishing  returns.  But  he  was  the  first  to 
bring  these  things  into  relation  with  his  economic  theory  as  a 
whole,  and  in  the  Ricardian  economics  the  land  margin  occupies 
the  center  of  the  stage. 

The  Ricardian  law  of  rent  embraces  two  ideas  or  complemen- 
tary phases :  a  resort  to  inferior  soils  and  an  extensive  margin ; 
and  a  law  of  diminishing  returns  leading  to  an  intensive  margin, 
James  Anderson,  long  reputed  the  originator  of  the  rent  theory, 
had  at  most  grasped  but  one  phase,  the  extensive  margin;  as 
late  as  1801  he  seems  to  have  believed  that  increasing  returns 
reward  more  intensive  culture  of  lands  already  in  use.2  And  in 
the  first  edition  of  his  Essay  on  Population  (1798)  Mai  thus  made 
no  statement  of  a  law  of  diminishing  returns.  It  was  one  of  the 
fundamentals  of  his  theory,  however,  and  in  the  second  edition  it 
appears  clearly.3  But  it  was  not  combined  with  the  other  phase 

1  Principles,  Chap.  VI,  p.  123,  2d  ed. 

2  See  Recreations  in  Agriculture,  Natural  History,  etc.,  Vol.    IV,  p.  374. 
Cited  by  Carman,  Production    and  Distribution,    p.    145.     See  Hollander, 
"The    Concept   of    Marginal    Rent,"    Quart.   Jr.   Econ.    IX,    179.     On 
Anderson    see    Brentano    (L.),    James    Anderson:     Drei    Schriften    uber 
Korngesetze  u.  Grundrente,  Leipzig,  1893.     Anderson  takes  a  series,  A,  B,  C, 
D,  E,  F,  representing  different  grades  of  land.     Price    determines  rent. 
If  price  drops  below  cost  on  F,  that  land  is  abandoned,  assuming  society  can 
get  enough  without  it.     Rent  is  the  premium  on  cultivating  superior  soils. 
(Inquiry  into  the  Nature  of  the  Corn  Laws,  1777.)  3  Above,  p.  200. 


220  ECONOMIC  THOUGHT 

to  make  a  rent  theory.  Some  trace  of  such  a  development,  in- 
deed, appears  in  his  Observations  on  the  Effects  of  the  Corn  Laws 
(I8I4),1  but  it  was  not  until  the  middle  of  this  year  that  the 
celebrated  Parliamentary  Reports  respecting  Grain  and  the  Corn 
Laws  were  published,  clearly  pointing  to  a  relation  between  ris- 
ing grain  prices  and  lower  margins  of  cultivation,  both  intensive 
and  extensive. 

A  few  months  later  and  almost  at  the  same  time  three  men  took 
the  step  of  clearly  coordinating  the  two  margins:2  Malthus  in  an 
Inquiry  into  the  Nature  and  Progress  of  Rent,  and  Grounds  of  an 
Opinion  on  the  Policy  of  Restricting  the  Importation  of  Foreign 
Corn;  Sir  Edward  West  in  an  Essay  on  the  Application  of  Capi- 
tal to  Land;  and  Ricardo  in  his  Essay  on  the  Influence  of  a  Low 
Price  of  Corn.  Though  his  Essay  was  the  last,  Ricardo  had 
suggested  the  step  in  a  letter  to  Malthus ; 3  and  he  so  made  the 
idea  his  own  that  there  is  a  large  element  of  truth  in  the 
phrase  "  Ricardian  law  of  rent."  In  his  Principles  the  full 
theory  appears. 

Adam  Smith  and  the  Physiocrats,  as  has  been  seen,  regarded 
rent  as  a  gift  of  nature,  and  as  consisting  in  that  part  of  the  prod- 
uce of  land  which,  after  deducting  the  wages  of  labor  and  profits 
.  of  capital,  is  received  by  the  landlord.  They,  however,  did  not 
attempt  to  determine  precisely  what  rent  different  landlords 
would  receive.  Ricardo  was  in  a  position  to  develop  their  ideas 
on  this  subject.  Rent  he  defines  as  "  that  portion  of  the  prod- 
uce of  the  earth  which  is  paid  to  the  landlord  for  the  use  of  the 
original  and  indestructible  powers  of  the  soil."  It  "  invariably 

1  Hollander,  "  The  Concept  of  Marginal  Rent,"  Quart.  Jr.  Econ.,  IX, 
180. 

1  Colonel  Robert  Torrens  should  be  mentioned  here.  His  An  Essay  on 
the  External  Corn  Trade  appeared  early  in  1815,  stating  the  law  of  rent,  in 
so  far  as  an  extensive  margin  is  concerned,  very  clearly,  and  quite  independ- 
ently of  Malthus  or  West.  Perhaps  John  Rooke  was  the  first  to  publish 
the  rent  doctrine.  Though  his  Principles  of  National  Wealth  did  not  appear 
till  1825,  the  substance  of  the  theory  appeared  in  a  series  of  articles  in  The 
Farmer's  Journal  during  1814  and  1815,  especially  February,  1815.  (See 
Seligman,  "  Some  Neglected  British  Economists,"  Econ.  Jr.,  XIII,  511  f.). 

*  Letters  of  Ricardo  to  Malthus,  ed.  by  Bonar,  p.  47.    Oct.  23,  1814. 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION     221 

proceeds  from  the  employment  of  an  additional  quantity  of 
labour  with  a  proportionally  less  return."  1 

Accordingly  the  portion  of  the  landlord  may  be  discovered  by 
considering  the  successive  steps  by  which  the  land  of  a  country  is 
brought  under  cultivation.  So  long  as  the  best  land  is  abun- 
dant and  every  one  can  have  it  by  taking  possession,  it  is  manifest 
that  there  can  be  no  such  thing  as  rent.  As  population  grows  and 
the  needs  of  the  people  become  greater,  however,  the  best  land  is 
gradually  taken  up  until  none  remains.  It  is  now  necessary  to 
have  recourse  to  land  of  an  inferior  quality,  which  may  be  called 
land  of  the  second  class.  Now  those  who  have  already  taken 
possession  of  land  of  the  first  class  have  a  manifest  advantage 
over  those  who  are  obliged  to  take  up  land  of  the  second  class. 
Land  of  the  second  class  must  pay  the  wages  of  labor  and  the 
ordinary  profits  of  capital,  or  it  would  not  be  cultivated. 
But  land  of  the  first  class  does  this  and  something  more.  This 
something  more  constitutes  the  rent  of  the  landlord :  the  farmer 
can  give  him  so  much  and  still  receive  the  usual  rate  of  profits 
and  pay  the  wages  of  his  labor.  In  the  course  of  time,  it  becomes 
necessary  to  cultivate  land  of  a  still  poorer  quality,  land  of  the 
third  class.  As  profits  on  capital  must  be  equal  as  well  as  wages, 
according  to  Ricardo,  and  as  this  poorer  quality  of  land  must  pay 
profits  and  wages,  land  of  the  second  class  can  pay  a  rent  which  is 
equal  to  the  difference  between  the  value  of  its  produce  and  that 
of  the  poorest  land  under  cultivation.  Land  of  the  first  class 
pays  a  higher  rent,  equal  also  to  the  difference  between  the  value 
of  its  produce  and  that  of  land  of  the  third  class. 

This  leads  to  the  following  conclusion :  "  With  every  step  in 
the  progress  of  population,  which  shall  oblige  a  country  to  have 
recourse  to  land  of  a  worse  quality,  to  enable  it  to  raise  its  supply 
of  food,  rent  on  all  the  more  fertile  land  will  rise,"  and  will 
always  be  equal  to  the  difference  between  the  produce  of  a 
given  quantity  of  capital  and  labor  on  the  more  fertile  land 
and  the  poorest. 

It  often  happens,  however,  that  additional  capital  will  be  ap- 
plied to  land  already  in  a  state  of  cultivation  instead  of  taking  up 

1  Principles,  Chap.  II,  2d  ed.,  pp.  47,  55. 


222  ECONOMIC  THOUGHT 

new  land,  which  event  "  will  equally  create  a  rent."  Suppose 
that  a  given  amount  of  capital  and  labor  produces  on  the  best 
land  one  hundred  quarters  of  wheat,  and  that  doubling  the  capi- 
tal and  labor  would  produce  eighty-five  additional  quarters. 
The  additional  investment  would  be  made  if  land  of  the  next 
lower  quality  would  not  produce  eighty-five  quarters  when  the 
same  amount  of  capital  and  labor  is  applied  to  it.  The  landlord 
would  receive  here  the  difference  between  the  most  and  the  least 
productive  employment  of  labor  and  capital,  or  fifteen  quarters. 
"  In  this  case,  as  well  as  in  the  other,  the  capital  last  employed 
pays  no  rent."  * 

It  follows,  of  course,  from  the  foregoing  that  rent,  as  such,  has 
no  direct  effect  on  prices,  for  they  are  determined  by  cost  of  pro- 
duction on  the  land  which  pays  no  rent.  If  contract  rent 2  were 
abolished,  the  cultivators  of  the  more  fertile  soils  would  take 
possession  of  the  wealth  of  the  landlords,  but  no  other  class  of 
society  would  receive  any  benefit  by  its  abolition. 

Toward  the  close  of  the  chapter  Ricardo  discusses  the  effect 
of  improvements  on  rent,  concluding  that,  inasmuch  as  they 
diminish  inequality  in  the  produce  of  portions  or  units  of  capital 
employed  on  land,  they  tend  to  reduce  rents.  Improvements, 
however,  are  of  two  sorts,  and  do  not  affect  rent  equally.  Those 
which,  like  better  fertilization,  enable  us  to  obtain  the  same  prod- 
uce from  a  smaller  quantity  of  land,  and  so  tend  to  raise  the  mar- 
gin through  a  withdrawal  of  the  worst  land  from  cultivation,  lower 
both  corn  and  money  rents.  On  the  other  hand,  improvements 
in  agricultural  machinery,  etc.,  may  simply  lead  to  the  produc- 
tion of  the  same  quantity  on  the  same  lands  at  a  lower  cost,  thus 
reducing  money  rents,  but  leaving  corn  rents  unaffected.  If  the 
latter  improvement  leads  to  a  readjustment  of  investment,  how- 

1  Principles,  Chap.  IT,  2d  ed.,  p.  54. 

2  It  is  conducive  to  clearness  to  keep  the  distinction  between  pure  economic 
rent  and  contract  rent  in  mind.    The  latter  is  the  rent  paid  by  a  tenant  to 
the  landowner,  and  may  be  more  or  less  than  the  economic  rent.     Contract 
rent  can  be  abolished ;  but  economic  rent,  existing  in  the  nature  of  thought, 
must  exist  wherever  there  are  investments  on  land  which  yield   different 
returns  per  unit. 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION      223 

ever,  so  that  a  larger  proportion  of  a  given  capital  is  applied  to 
the  better  land,  both  corn  and  money  rents  will  be  affected. 

The  landlord  is  benefited  by  difficulty  of  production.  The 
farther  down  in  the  scale  the  increase  of  population  forces  culti- 
vation, and  the  higher  the  price  of  provisions,  the  greater  his 
gains.  His  advantage  is  thus  opposed  to  that  of  the  rest  of 
society,  —  another  view  with  a  pessimistic  tendency.1 

Ricardo  and  Ricardians  were  erelong  to  have  some  aspects  of 
their  rent  doctrine  criticized 2  on  the  ground  that  they  assumed 
an  order  of  cultivation  in  which  men  took  the  most  fertile  lands 
first  and  proceeded  to  less  and  less  fertile  ones,  which  is  not  al- 
ways the  fact.  But  Ricardo's  statement  is  this :  "  The  most 
fertile,  and  most  favourably  situated  land  will  be  first  culti- 
vated." While  the  unwary  reader  may  easily  get  the  impression 
that  fertility  alone  is  considered,  this  is  not  the  case.  The 
situation  element  is  recognized.  If  all  lands  were  equally  fertile, 
there  would  be  no  rent,  "  unless  where  it  possessed  peculiar 
advantages  of  situation,"  says  Ricardo.  In  any  case,  of  course, 
the  criticism  bears  only  upon  the  movement  of  rent  as  an  histori- 
cal fact,  which  is  not  the  essence  of  the  theory. 

Assuming  that  the  movement  was  from  better  to  worse  soils,  — 
as,  indeed,  it  is,  all  things  considered,  —  Ricardo  took  the  pessi- 
mistic view  that  rent  is  not  the  result  of  the  generosity  of  nature 
but  of  her  niggardliness.  If  there  were  an  unlimited  supply  of 
equally  productive  land,  as  there  is  of  sunshine  and  water,  there 
would  be  no  rent.  "  Nothing  is  more  common,"  says  Ricardo, 

1  On  the  other  hand,  a  certain  note  of  optimism  born  of  the  possibility 
of  increasing  returns  in  manufactures  may  be  noted.     In  Chap.  V,  "  On 
Wages,"  he  wrote:  "The  natural  price  of  all  commodities,  excepting  raw 
produce  and  labour,  has  a  tendency  to  fall,  in  the  progress  of  wealth  and 
population;"  for  the  rise  in  price  of  raw  material  is  "more  than  counter- 
balanced by  the  improvements  in  machinery,  by  the  better  division  and 
distribution  of  labour,  and  by  the  increasing  skill,  both  in  science  and  art, 
of  the  producers." 

2  By  Carey  in  America  (below,  pp.  243  f.),  Torrens  in  England,  and  Von 
Thiinen  in  Germany.    The  first  was  most  sweeping ;   the  two  last  merely 
emphasized  the  situation  element.     Samuel  Read  in  his  Natural  Grounds 
of  Right  to  Vendible  Property  or  Wealth  (1829)  also  criticized  Ricardo. 


224  ECONOMIC  THOUGHT 

"  than  to  hear  the  advantages  which  land  possesses  over  every 
other  source  of  useful  produce,  on  account  of  the  surplus  which 
it  yields  in  the  form  of  rent.  Yet  when  land  is  most  abundant, 
when  most  productive  and  most  fertile,  it  yields  no  rent,  and  it 
is  only  when  its  powers  decay,  and  less  is  yielded  in  return  for 
labour,  that  a  share  of  the  original  produce  of  the  more  fertile 
portions  is  set  apart  for  rent.  It  is  singular  that  this  quality 
in  the  land,  which  should  have  been  noticed  as  an  imperfection, 
compared  with  the  natural  agents  by  which  manufactures  are 
assisted,  should  have  been  pointed  out  as  constituting  its  peculiar 
preeminence." 

\  Malthus,  starting  with  early  society,  when  poor  tools  and  often 
the  less  fertile  soils  were  used,  pointed  out  that  then  population 
was  checked  by  scanty  food.  With  civilization  came  improved 
processes  and  implements,  increasing  the  produce.  The  tendency 
of  population  to  outrun  subsistence,  however;  keeps  prices  up, 
and  therefore  rent  increases.  But  it  is  not  a  deduction  from 
other  shares.  It  is  the  result  of  the  bounty  of  nature. 
*  Ricardo,  on  the  other  hand,  takes  the  England  of  his  day.  He 
sees  cultivation  extended  to  poorer  soils,  and  more  intensive 
culture.  At  the  same  time  rents  are  increasing  and  profits 
decreasing.  He  concludes  that  rent  is  a  deduction  from  the 
other  shares  in  distribution,  and  is  due  to  the  niggardliness  of 
nature.1 

In  criticizing  the  Ricardian  theory  of  rent,  one  must  keep 
distinct  the  theory,  as  such,  and  any  deductions  about  social 
classes  and  historical  movements.  Two  men  might  uphold  the 
theory  while  maintaining  different  views  on  the  latter  subjects, 
as  did  Malthus  and  Ricardo.  The  rent  theory  proper  stands  to 
this  day,  the  result  of  nearly  a  century  of  criticism  having  been  a 
more  careful  and  limited  formulation  and  a  less  absolute  state- 
ment of  its  unique  character.  Thus  the  word  "  indestructible  " 
as  referring  to  the  powers  of  the  soil  has  been  dropped  as  being 
misleading.  So  far  as  fertility  is  concerned,  the  power  of  land  may 
be  destroyed  and  replaced  in  a  sense  somewhat  similar  to  that  in 

1  See  Patten,  Maltha  and  Ricardo,  American  Economic  Association 
Publications,  1889. 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION      225 

which  things  are ' '  manufactured. ' ' 1  Yet  th  ere  are  certain  elements 
that  go  with  land,  like  climate,  which  in  the  present  state  of  the 
arts  can  neither  be  destroyed  nor  made ;  while,  in  general,  the  de- 
struction and  making  of  any  land  element  takes  place  with  such 
unequal  facility  as  to  make  those  relatively  permanent  inequali- 
ties which  are  essential  to  the  rent  theory.  That  differentials 
similar  to  land  rent  are  widespread,  both  in  labor  and  capital 
payments,  has  been  pointed  out.  These  have  been  called  "  quasi 
rents,"  but  lack  the  permanence  and  generality  of  land  rents. 
Then  there  are  those,  beginning  with  Mill  and  Jevons,  who 
attack  the  idea  that  land  rent  is  unique  in  character,  and  main- 
tain that  under  certain  exceptional  conditions  rent  enters  price. 
Richard  Jones,  in  an  Essay  on  the  Distribution  of  Wealth?  criti- 
cized Ricardians  because  at  various  times  and  places  in  the  case  of 
peasants'  rents  the  principles  laid  down  by  Ricardo  did  not  seem 
to  apply.  But  again  this  only  shows  that,  competition  being  lim- 
ited by  custom,  the  full  economic  rent  was  not  exacted.  This  may 
be  true  to-day,  but  does  not  affect  the  Ricardian  theory  proper.3 
Wages.  —  Rent  being  measured  from  the  worst  investment 
on  land,  where  wages  and  profit  alone  are  paid,  Ricardo  must 
next  inquire  what  determines  these  payments.  Following  along 
the  easy  course  indicated  by  the  Physiocrats  and  Adam  Smith, 
he  adds  the  Malthusian  principle,  and  the  result  is  his  so-called 
iron  law  of  wages,  das  ehcrnc  Lohngcsctz,  as  Lassalle  called  it. 
The  theory  was  virtually  formulated  by  Torrens  in  i8i5.4  It  is 

1»Yet  even  here  the  question  may  be  raised  if  the  difference  in  degree 
does  not  constitute  a  difference  in  kind,  as  so  often  happens  in  economics. 

2  London,  1831. 

8  For  full  discussion  of  various  criticisms  see  Diehl,  Ricardo' s  Volksivirt- 
schaft  und  Besteurung  (Leipzig,  1905),  Vol.  II,  pp.  199  ff. 

4  Ricardo  was  undoubtedly  influenced  in  his  statement  by  Torrens' 
Essay  on  the  Corn  Trade,  which  contains  the  following  passage  :  "The  proper 
way  of  regarding  labour  is  as  a  commodity  in  the  market.  It  therefore  has 
...  its  market  price  and  its  natural  price  ...  its  natural  price  .  .  .  consists 
in  such  a  quantity  of  the  necessaries  and  comforts  of  life,  as  from  the  nature 
of  the  clima  e  and  the  habits  of  the  country  are  necessary  to  support  the 
labourer,  and  to  enable  him  to  rear  such  a  family  as  may  preserve  in  the 
market  an  undiminished  supply  of  labour"  (p.  62).  Ricardo  himself  says: 
"The  whole  of  this  subject  is  most  ably  illustrated  by  Colonel  Torrens." 
Q 


226  ECONOMIC  THOUGHT 

this :  "  The  natural  price  of  labor  is  the  price  which  is  necessary 

ito  enable  the  labourers,  one  with  another,  to  subsist  and  to 
perpetuate  their  race,  without  either  increase  or  diminution." 
It  was  this  natural  or  necessary  price  that  chiefly  concerned 
Ricardo. 

Now  labor,  he  would  have  said,  is  a  commodity,  and  may  be 
increased  or  diminished  in  quantity  like  other  commodities. 
In  an  advancing  state  of  society,  the  market  price  will  be  above 
the  natural  price  and  may  continue  so  for  a  long  time,  but  early 
and  frequent  marriages  and  large  families  will  produce  all  the 
labor  required  and  reduce  it  to  its  natural  price  eventually.  In  a 
declining  state  of  society,  on  the  other  hand,  labor  would  sink 
below  its  natural  price,  and  the  supply  would  diminish  on  account 
of  frequent  deaths,  few  marriages,  and  small  families.  This  is 
substantially  the  view  to  be  found  in  the  writings  of  Turgot  and 
Adam  Smith,  though  the  earlier  thinkers  did  not  formulate  the 
law  with  the  same  precision. 

But  what  forces  make  wages  rise  in  an  advancing  state? 
What  sets  a  maximum  ?  What  forces  cause  them  to  fall  again  ? 
To  just  what  level  ? 

The  market  rate  of  wages,  Ricardo  thinks,  may,  in  an  improv- 
ing society,  be  above  the  natural  or  normal  rate  for  an  "indefi- 
nite period."  This  will  be  due  to  an  increase  in  capital,  by 
capital  in  this  case  meaning  chiefly  food  and  clothes ;  "  for  in 
proportion  to  the  increase  of  capital  will  be  the  increase  in  the 
demand  for  labor."  l  Where  there  is  an  abundance  of  fertile 
land,  the  productive  power  of  labor  is  high,  and  the  accumulation 
of  capital,  which  depends  upon  that  power,2  may  be  more  rapid 
than  the  growth  of  population.  Accordingly  "  the  price  of 
labor  "  rises. 

But  the  increase  of  capital  is  limited  by  the  productiveness  of 
labor  on  land.  As  population  increases,  poorer  investments  on 
land  must  be  made,  and  the  return  to  capital  being  decreased,  the 
demand  for  labor  slackens.  This  brings  the  rise  in  wages  to  a 
halt.  Ricardo  sets  no  definite  maximum  point ;  save  that  in  the 

1  Principles,  Chap.  V,  ad  ed.,  p.  89.  .  *  Ibid.,  p.  92. 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION     227 

chapter  on  profits  he  states  that  at  the  margin  wages  cannot 
rise  so  high  as  to  deprive  capital  of  all  profit.1 

"  In  the  natural  advance  of  society,"  however,  wages  have 
a  tendency  to  fall.  Real  wages  do  so  because  demand  de- 
creases relatively  to  supply ;  there  is  a  decreased  rate  of  produc- 
tion on  account  of  the  limited  quantity  and  differing  quality  of 
land,  while  population  tends  to  increase.  But  the  price  of  neces- 
saries, more  labor  being  required  for  their  production,  rises ;  so 
that  money  wages  are  sustained.  Real  wages  fall,  and  the  la- 
borer is  really  worse  paid.  His  fate  is  less  happy  than  the 
landlord's;  his  corn  wages  will  be  reduced,  and  "his  general 
condition  will  be  deteriorated." 

Here,  then,  is  another  view  tending  toward  pessimism. 

The  minimum  point  is  set  by  the  quantity  of  food,  necessaries, 
and  conveniences  which  have  become  essential  to  the  laborer 
through  habit.  This  makes  the  natural  wage.  Thus,  in  Ri- 
cardo's  wages  system,  the  price  of  labor  depends  upon  the  price 
of  those  goods  which  the  laborer's  standard  of  living  make  essen- 
tial, which  price  in  its  turn  depends  (chiefly)  upon  the  quantity 
of  labor  required  to  produce  the  goods.  In  a  word,  the  minimum 
daily  wage,  according  to  Ricardo,  consists  of  the  necessities 
which  can  be  produced  by  the  laborer  in  a  day's  work  upon 
marginal  land,  the  necessary  profits  upon  the  capital  employed 
being  deducted.  It  is  hardly  necessary  to  observe  that  this 
minimum  is  not  the  bare  subsistence  which  it  used  to  be  painted. 
The  "  conveniences  become  essential  to  him  from  habit  "  may  be 
considerably  more.  Ricardo  makes  this  clear  in  discussing  the 
variation  of  the  natural  price  of  labor  in  different  countries. 

In  accordance  with  this  idea  of  a  minimum,  Ricardo  finds  one 
means  only  of  permanently  assisting  laborers,  and  that  is  by 
giving  them  such  a  taste  for  the  comforts  and  conveniences  of 
life  as  would  lead  them  to  regard  the  said  comforts  and  con- 
veniences as  necessary  to  life.  "  The  friends  of  humanity 
cannot  but  wish  that  in  all  countries  the  labouring  classes  should 
have  a  taste  for  comforts  and  enjoyments,  and  that  they  should 
be  stimulated  by  all  legal  means  in  their  exertions  to  procure 

1  See  below,  p.  232. 


228  ECONOMIC  THOUGHT 

them.  There  cannot  be  a  better  security  against  a  superabun- 
dant population.  In  those  countries,  where  the  labouring  classes 
have  the  fewest  wants,  and  are  contented  with  the  cheapest 
food,  the  people  are  exposed  to  the  greatest  vicissitudes  and 
miseries."  1 

As  to  government  interference  with  the  labor  contract, 
|  Ricardo  concluded  that,  "  Like  all  other  contracts,  wages  should 
'  be  left  to  the  fair  and  free  competition  of  the  market,  and  should 
never  be  controlled  by  the  interference  of  the  legislature."  z 

As  suggested  by  the  above  exposition  of  Ricardo's  theory, 
I  he  at  points  clearly  suggests  a  wages-fund  theory.  But  he  did 
/not  hold  the  idea  of  a  rigidly  fixed  fund.3  This,  indeed,  would 
have  been  inconsistent  with  his  idea  of  a  natural  wage  deter- 
mined at  the  poverty  point.  It  was  left  for  followers  to  develop 
the  idea  of  capital  as  a  fund  for  the  subsistence  of  laborers  and 
determining  the  demand  for  them. 

So  abstract  and  absolute  a  wage  theory  as  Ricardo's  proved 
thoroughly  unsatisfactory.  Nowhere  does  the  viciousness  of 
the  great  economist's  abstract  method  appear  more  clearly. 
Overlooking  differences  in  work  and  workers,  non-competitive 
groups,  etc.,  he  assumes  an  average  laborer  doing  average  work 
under  conditions  of  perfect  competition  and  receiving  a  "  natu- 
ral "  wage.  The  effect  of  laws  and  customs  is  virtually  ignored, 
or  dismissed  as  a  "  disturbing  "  factor.  He  assumes  that  all 
laborers  are  hired  by  capitalists  with  the  idea  of  profit.  In  the 
face  of  facts,  such  assumptions  appear  so  unreal  as  almost  to 
make  the  so-called  "  tendencies  "  and  "  natural  "  wage  rates 
deduced  by  their  aid  the  exception  rather  than  the  rule. 

Again,  Ricardo  made  the  Malthusian  principle  of  population 
one  of  the  factors  in  his  wage  theory.  As  stated  by  Malthus,  the 
principle  does  not  lead  to  a  subsistence  wage  as  a  necessary  con- 
clusion, but  as  usual,  Ricardo  ordinarily  leaves  out  "  disturbing  " 
elements !  But,  even  granting  that  Malthusianism  does  neces- 
sarily lead  to  this,  it  has  appeared  that  as  anything  more  than  a 
statement  of  what  would  happen  if  certain  other  forces  were  not 

1  Principles,  Chap.  V,  2d  ed.,  p.  95.  *  Ibid.,  p.  103. 

*  See  Taussig,  Wages  and  Capital,  Chap.  IX. 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION     229 

effective,  the  tendency  of  population  to  increase  beyond  sub- 
sistence is  untrue.  As  more  than  a  tendency,  as  an  historical 
fact,  it  is  not  valid.  Thus  it  is  at  best  a  weak  argument  upon 
which  to  base  a  wage  theory.  Ricardo's  theory  is  as  weak  as  is 
the  Malthusian  principle  absolutely  put  without  its  limitations, 
and,  furthermore,  leads  to  as  pessimistic  conclusions. 

Profits  and  Interest.  —  Ricardo's  treatment  of  profits  (inter- 
est) is  the  least  satisfactory  part  of  his  work.  It  is  not  only 
accompanied  by  error,  but  is  also  so  slighted  and  secondary  as  to 
be  but  a  rudimentary  theory.  His  whole  treatment  might  with 
little  exaggeration  be  styled  "  some  remarks  on  the  relation  of 
profits  to  wages." 

To  begin  with,  there  is  scant  discussion  of  the  source  of  profits, 
and  no  analysis  into  component  parts.  Profits  consists  of  inter- 
est and  undertakers'  or  entrepreneurs'  gains ;  but  the  two 
elements  remain  virtually  undistinguished,  Ricardo  considering 
that  the  interest  rate  is  determined  by  the  rate  of  profit  the 
entrepreneur  can  make.  The  source  of  profits,  the  productivity 
of  capital,  is  taken  for  granted  even  more  tacitly  than  the  part 
played  by  utility  in  value. 

The  definition  of  capital  comes  in  the  chapter  on  wages. 
Capital  is  that  part  of  a  country's  wealth  which  is  employed  in 
production,  and  consists  of  food,  clothing,  tools,  raw  materials, 
machinery,  etc.,  necessary  to  give  effect  to  labor.  But  chiefly, 
one  gathers,  it  is  considered  as  advances  to  laborers ;  and  profits 
depend  upon  an  excess  of  the  product  over  the  advances. 

Briefly  put,  it  is  Ricardo's  doctrine  that  the  rate  of  profit 
depends  on  wages,  rising  as  wages  fall  and  falling  as  wages  rise. 
Formally  stated  in  his  own  words :  "In  all  countries,  and  at  all 
times,  profits  depend  on  the  quantity  of  labour  requisite  to 
provide  necessaries  for  the  labourers,1  on  that  land  or  with 
that  capital  which  yields  no  rent."  2  For  the  determination  of 
profits  we  must  look  to  the  margin  of  cultivation.  In  the  case 
of  the  least  productive  investment  in  agriculture,  the  total 
produce  only  pays  labor  and  capital.  There  is  no  rent.  This 

1  That  is,  on  the  value  of  labor,  or  wages. 
1  Principles,  Chap.  VI,  ad  ed.,  p.  133. 


230  ECONOMIC  THOUGHT 

product,  then,  limits  the  amount  of  wages  and  profits.  But 
how  much  of  it  will  the  capitalist  get  ?  He  gets  what  the  labor- 
ers leave.  They  must  live  and  reproduce,  and  receive  wages 
enough  to  enable  them  to  do  so,  as  well  as  obtain  such  conven- 
iences of  life  as  may  have  become  necessary  to  them.  The 
capitalist  is  the  residual  claimant. 

If  the  marginal  investment  on  land  is  yielding,  say  £720, 
it  "  must  be  divided  between  wages  and  profits.  .  .  .  If  there  be 
no  excess,  there  will  be  no  rent.  Whether  wages  or  profits  rise  or 
fall,  it  is  this  sum  of  £720  from  which  they  must  both  be  provided. 
On  the  one  hand,  profits  can  never  rise  so  high  as  to  absorb  so 
much  of  this  £720  that  enough  will  not  be  left  to  furnish  the 
labourers  with  absolute  necessaries;  on  the  other  hand,  wages 
can  never  rise  so  high  as  to  leave  no  portion  of  this  sum  for 
profits."  : 

Two  questions  arise  with  regard  to  this  statement  of  the  case : 
and  first,  what  minimum  limit  to  profit  is  there?  In  the  above 
quotation  Ricardo  admits  a  minimum, —  with  what  significance 
will  appear  in  a  moment,  —  saying  that  some  portion  of  the  £720 
wages-plus-profits  aggregate  must  always  be  left  for  profits. 
Elsewhere  he  states  that  "  long  before  "  profits  were  reduced 
to  nil  "  there  would  be  no  motive  for  accumulation ;  " 2  profits 
must  be  sufficient  to  afford  "  an  adequate  compensation  for 
their  trouble,  and  the  risk."  3  Thus  there  is  some  implication  of 
an  abstinence  idea,  but  it  is  carried  no  farther,  and  is  not  brought 
into  connection  with  the  general  theory  of  profits. 

The  second  question  is :  how  is  the  margin  determined,  that 
is,  what  limits  the  amount  of  the  wages-plus-profits  aggregate 
(£720)?  That  this  question  concerns  a  maximum  point  for 
profits  will  at  once  be  perceived.  Now  it  cannot  be  said  that 
the  necessity  for  paying  a  subsistence  wage  fixes  a  maximum 
limit  for  profits  unless  the  margin  at  which  the  wages-plus-profits 
aggregate  is  just  yielded,  is  determined  by  wages  payment  alone. 
If  there  is,  for  example,  a  necessary  minimum  rate  of  profit,  the 

1  Principles,  Chap.  VI,  ad  ed.,  p.  116. 
1  Note  the  productivity  idea  implied. 
1  Principles,  Chap.  VI,  2d  ed.,  pp.  126-127. 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION      231 

wages-plus-profit  aggregate  and  the  margin  will  be  modified  by 
profits  to  that  extent ;  and  the  upper  limit  of  profit  payment 
becomes  elastic  so  far  as  wages  are  concerned.  The  margin 
would  be  higher,  and  the  aggregate  be,  not  £720,  but,  say, 
£8oo.1 

But  Ricardo's  general  argument  would  mean  that  the  wages 
would  be  the  only  necessary  expense.  The  farmer  would  push 
cultivation  to  less  productive  levels  till  at  the  margin  wages  only 
would  be  paid.  Ricardo,  however,  himself  recognizes  that  a 
minimum  payment  is  necessary  for  capital,  and,  perhaps  uncon- 
sciously, admits  that  the  position  of  the  margin  must  be  affected 
by  such  necessity.  This  being  true,  what  prevents  profits  rising 
to  any  height,  according  to  the  scarcity  of  capital,  simply  necessi- 
tating a  higher,  more  productive  margin  ?  The  wages-plus-profits 
aggregate  would  be  greater.  Higher  profits  would  be  possible. 
Wages  and  profits  may  rise  at  the  same  time.  The  truth  is  that 
profits  are  not  dependent  upon  wages,  but  are  independently 
determined,  in  the  sense  that  wages  are. 

Ricardo  thought  that  with  progress  in  civilization  profits 
tend  to  fall.  This  would  not  be  due  to  a  competition  of  capi- 
tals, to  which  he  allowed  but  a  temporary  effect,  but  to  a 
lowering  of  the  margin  of  cultivation  following  increased  demand 
for  food  and  rising  prices.  High  prices  for  necessaries,  high 
wages,  low  profits,  —  this  is  the  tendency.  "  This  tendency, 
this  gravitation  as  it  were  of  profits,  is  happily  checked  at  re- 
peated intervals,"  however,  by  improvements  and  discoveries  in 
machinery  and  agricultural  science.2 

One  result  of  Ricardo's  teaching  was  an  emphasis  of  the  idea 
that  there  is  a  natural  and  inevitable  struggle  of  classes.  Put 
very  generally,  and  in  another  way,  it  was  Ricardo's  idea  that 
the  share  of  the  landholder  increases,  and  that  it  does  so  at  the 
expense  of  any  real  increase  in  the  shares  of  labor  and  capital. 
He  taught,  moreover,  that  the  laws  of  nature  make  for  a  perpet- 
ual struggle  between  capitalist  and  laborer,  which  is  certainly  a 

1  Jevons  was  probably  the  first  to  criticize  thoroughly  the  Ricardian 
theory  along  the  line  here  followed.  See  his  Theory  of  Political  Economy, 
London,  1871,  pp.  256  ff.  *  Ibid.,  p.  124. 


232  ECONOMIC  THOUGHT 

gloomy  view.  "  There  can  be  no  rise  in  the  value  of  labour 
without  a  fall  of  profits.  If  the  corn  is  to  be  divided  between 
the  farmer  and  the  labourer,  the  larger  the  proportion  that  is 
given  to  the  latter,  the  less  will  remain  for  the  former.  So,  if 
cloth  or  cotton  goods  be  divided  between  the  workman  and  his 
employer,  the  larger  the  proportion  given  the  former,  the  less 
remains  for  the  latter."  l  Adam  Smith  had  already  hinted  at 
these  pessimistic  doctrines,  but  he  did  not  bring  them  out  with 
such  clearness  and  precision  as  did  Ricardo.  (As  implied  else- 
where in  this  chapter,  Ricardo,  while  a  follower  of  Adam  Smith, 
was  far  from  being  a  mere  expositor  of  his  predecessor.) 

Ricardo's  Ideas  on  Surpluses.  —  The  Physiocrats  made  much 
of  the  idea  of  the  return  from  land  as  a  unique  surplus;  their 
produit  net  was  a  sole  surplus  over  costs,  arising  from  the  bounty 
of  nature.  Ricardo,  as  indicated  in  the  section  on  rent,  also 
treated  rent  as  a  surplus,  while  basing  it  upon  the  niggardliness 
of  nature.  But  he  at  points  suggests  the  existence  of  other  sur- 
pluses. Labor,  he  says,  may  sometimes  receive  a  surplus; 
and,  above  all,  he  makes  some  remarks  concerning  profits  which 
would  seem  to  indicate  that  he  regarded  them  in  part  as  some- 
thing over  and  above  cost.  In  this  matter  he  is  not  consistent,2 
having  probably  not  given  it  distinct  consideration.  Thus  his 
discussion  of  the  wages-plus-profits  aggregate,  taken  in  connec- 
tion with  his  idea  of  a  minimum  subsistence  wage,  would  leave 
profits  as  a  varying  residuum,  containing  presumably  an  element 
of  surplus.  Also  he  states  that  taxes  can  be  made  to  rest  upon 
profits,  and  that  savings  can  be  made  from  them,3  which  would 
lead  to  a  similar  conclusion.  On  the  other  hand,  he  conveys  the 
idea  of  the  necessity  of  profits  as  a  motive  for  accumulation  and  a 
compensation  for  risk  and  trouble ;  and  at  one  point  he  says  that 
a  tax  on  profits  would  raise  prices.4  Again,  the  tendency  of 
profits  to  a  minimum  (later  worked  out  by  Mill)  is  suggested. 
These  various  ideas  were  not  connected  and  correlated  by 
Ricardo.  It  does  not  seem  fair  to  say  more  than  that  his 
treatment  is  wavering,  and  that  had  he  been  put  to  it  he  would 

1  Chap.  I,  §  4,  36  ed.  *  2d  ed.,  p.  441. 

1  See  Chap.  XXVI.  4  Ibid.,  p.  245. 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION      233 

probably  have  made  profits  a  cost,  not  a  surplus,  under 
competitive  conditions. 

Other  notable  features  of  Ricardo's  work  are  his  discussions 
of  money  and  foreign  trade.  In  the  latter  subject  he  emphasized 
the  ability  of  acquiring  goods  cheaply  through  international 
division  of  labor  l  and  partly  worked  out  the  idea  of  comparative 
cost,  though  on  this  last  point  he  may  well  have  drawn  upon 
Colonel  Robert  Torrens.2 

Philosophy  and  Method.  —  There  is  relatively  little  to  be  said 
concerning  Ricardo's  philosophy,  and  that  largely  by  way  of 
implication  and  inference.  He  was  no  philosopher.  But  one  of 
his  training  and  motive  easily  became  utilitarian,  and  utilitarian 
in  the  narrower  sense.  He  was  interested  in  material  things ; 
he  was  an  individualist ;  his  citizen  was  the  "  economic  man  " ; 
he  had  the  idea  of  an  indefinite  sum  of  satisfactions  —  there  was 
no  limit  to  the  desire  for  enjoyment.  These  characteristics 
stamp  the  utilitarian  political  economists  of  the  early  nineteenth 
century,3  Bentham  (1748-1832),  James  Mill,  M'Culloch,  etc., 
and  Ricardo  followed  tacitly.  James  Mill  was  his  friend  and 
mentor,  and,  through  Mill,  Ricardo  met  Bentham,  the  man  who 
above  all  others  gave  the  classical  school  of  political  economy  its 
ethical  viewpoint. 

It  may  be  said,  then,  that  Ricardo  was  utilitarian  in  the 
narrower  sense,  and  certainly  he  was  at  heart  a  materialist. 
His  economy  was  what  certain  writers  have  called  primitive. 
In  it  the  forces  of  nature  were  dominant  and  man  was  ruled  by 
environment.  Progress  of  society  and  the  ideal  found  small 
place  in  it. 

Ricardo's  economic  philosophy  was  that  of  the  manufacturing 
middle  classes  of  contemporary  England.  He  was  a  free  trader 
and  believed  in  the  effectiveness  of  competition,  though,  like 
Bentham,  he  can  hardly  be  classed  as  a  member  of  the  "  Man- 
chester School."  He  taught  that  rent  is  an  unearned  deduction 
from  other  shares,  increasing  in  a  declining  state ;  while  profits 

1  J.  S.  Mill  elaborated  Ricardo's  doctrine.     See  below,  p.  360. 
J  Torrens,  An  Essay  on  the  Corn  Trade,  pp.  264-265  (1815). 
s  Bonar,  Philosophy  and  Political  Economy,  pp.  218-219. 


234  ECONOMIC  THOUGHT 

(and  interest)  rise  with  progress,  betokening  an  identity  of  in- 
terest between  society  and  capitalists.  Profits,  moreover,  de- 
pend on  wages,  the  implication  being  that  low  wages  are  desir- 
able, at  least  if  by  low  wages  is  meant  wages  that  are  low  as 
compared  with  the  efficiency  of  the  laborers.  He  has  broken 
with  the  Physiocrats,  Smith,  and  Malthus.  He  stands  for  the 
newly  dominant  class,  attaching  an  importance  to  profits  that  is 
similar,  in  a  way,  to  the  attitude  of  the  earlier  economists  toward 
the  land-rent  surplus. 

Indeed,  while  in  a  sense  Ricardo  reacts  from  Smith  to  the 
Physiocrats  in  his  conception  of  the  scope  of  economics,  empha- 
sizing Distribution  as  he  does,1  he  also  gives  a  great  blow  to  the 
remnants  of  their  ideas  of  productivity  and  nature  philosophy. 
One  of  his  great  services  lay  in  the  fact  that  more  than  any 
predecessor  he  separated  political  economy  from  other  branches 
of  knowledge,  and  from  ethics  and  jurisprudence,  in  particular. 

Much  might  be  said  on  Ricardo's  method.  Perhaps  no  other 
economist  has  been  so  abstract  and  hypothetical  as  he.  In  all 
that  he  says  concerning  value  he  does  not  adduce  one  single 
illustration  from  actual  life.  Not  even  one  historical  or  statis- 
tical fact  is  brought  forward  to  support  his  conclusions.  Inside 
of  two  pages  no  fewer  than  thirteen  distinct  suppositions,  all  of 
them  purely  imaginary !  The  whole  discourse  is  hypothetical. 
The  deficiency  of  this  method  has  already  been  commented  upon 
in  discussing  Ricardo's  theory  of  wages. 

i  Again  his  method  is  clearly  deductive.  There  is  a  consider- 
able element  of  truth  in  regarding  Smith's  work  as  combining 
two  methods  and  Malthus  and  Ricardo  as  pursuing  the  one  and 
the  other.  For  weal  or  woe,  Ricardo  long  possessed  an  unparal- 
leled ascendency  over  English  economic  thought,  and  not  the 
least  effect  of  his  sway  was  the  prominence  given  the  method  he 
followed.  From  a  few  premises  he  builds  up  his  system  like  a 
mathematical  proposition.  But  his  premises  are  often  taken  for 

1  In  a  celebrated  letter  to  Malthus,  Ricardo  wrote :  "Political  Economy 
you  think  is  an  enquiry  into  the  nature  and  causes  of  wealth;  I  think  it 
should  rather  be  called  an  enquiry  into  the  laws  which  determine  the  division 
of  the  produce  of  industry  amongst  the  classes  who  concur  in  its  formation." 


RICARDO  AND  THE  THEORY  OF  DISTRIBUTION      235 

granted.  They  consist  either  in  the  doctrines  of  Smith,  or  in 
some  broad  induction  of  his  time,  as  the  law  of  diminishing 
returns.  Enlightened  self-interest,  competition,  the  natural- 
ness of  existing  institutions,  are  assumed.  Then  all  "  disturb- 
ing "  factors  are  practically  disregarded.  Single  causes  are 
taken,  and  an  acute  and  generally  accurate  deduction  follows. 
The  trouble  generally  lies  in  the  premises;  for  there  is  almost 
no  verification  with  facts.  Though  not  entirely  so,  Ricardo's 
thought  is  relatively  free  from  inconsistency. 

The  very  narrowness  and  absolutism  that  went  naturally  with 
such  methods  were  for  the  time  a  source  of  strength.  The  con- 
fusion in  Smith's  statements  had  been  worse  confounded  by  the 
breaking  out  of  the  Industrial  Revolution,  and  men  wanted 
rules.  Their  feeling  then  was  that  of  De  Quincey,  when  he 
said :  "  Mr.  Ricardo  had  deduced,  d  priori,  from  the  under- 
standing itself,  laws  which  first  gave  a  ray  of  light  into  the 
unwieldy  mass  of  materials,  and  had  constructed  what  had  been 
but  a  collection  of  tentative  discussions  into  a  science  of  regular 
proportions,  now  first  standing  on  an  eternal  basis."  1 

It  has  been  suggested  that  Ricardo's  much-extolled  logical 
power  was  due  to  the  fact  that  being  a  business  man  and  of 
foreign  stock  he  was  blind  to  the  traditions  of  English  institutions 
and  thought,  thus  pursuing  a  straight  course  through  inability  to 
see  the  crooked  branch  roads.2  But  while  this  suggests  some 
modification,  the  general  belief  in  Ricardo's  powerful  and  acute 
deduction  seems  just.  In  his  abstract  narrowness  lay  no  small 
share  both  of  his  weakness  and  of  his  strength. 

Ricardo's  Followers.  —  The  only  immediate  followers  of 
Ricardo's  economic  ideas  who  are  worthy  of  note  are  James 
Mill  (1773-1836),  J.  R.  M'Culloch  (1789-1864),  and  Thomas 
De  Quincey  (1785-1859).  James  Mill,  father  of  John  Stuart  Mill, 
was  a  philosopher  and  historian  of  no  mean  powers.  His  chief 
economic  work,  entitled  Elements  of  Political  Economy  (1821), 

1  Confessions  of  an  Opium  Eater,  quoted  by  Toynbee,  Ricardo  and  the 
Old  Political  Economy,  p.  2.    See  this  essay  for   Ricardo's  influence,  the 
grounds  for  it,  and  his  limitations. 

2  Patten,  Development  of  English  Thought. 


236  ECONOMIC  THOUGHT 

aimed  to  be  an  epitome  of  accepted  economic  doctrines.  In  it 
he  presented  extreme  views  on  the  labor  theory  of  value,  and 
a  pessimistic  interpretation  of  the  Malthusian  principle.  The 
father  had  much  influence  upon  his  great  son's  thought,  and  was 
effective  in  stimulating  Ricardo  to  publish.  M'Culloch  was  a 
less  original  thinker  than  Mill,  but  his  chief  economic  work, 
The  Principles  of  Political  Economy  (1825),  was  widely  read  both 
in  England  and  on  the  Continent.  He  held  views  on  value  like 
those  of  Mill,  and  is  notable  as  an  early  exponent  of  the  wages- 
fund  theory,  a  theory  which  he  set  forth  in  an  Essay  on  the 
Circumstances  which  determine  the  Rate  of  Wages  and  the  Condi- 
tion of  the  Labouring  Classes  (1826).  M'Culloch  was  also  active 
in  statistics  and  in  the  bibliography  of  economics.  De  Quincey 
wrote  Dialogues  of  Three  Templars  (1824),  defending  a  narrow 
interpretation  of  the  Ricardian  theory  of  value,  and  the  Logic 
of  Political  Economy  (1844),  in  which  he  emphasized  the  impor- 
tance of  utility  and  made  significant  suggestions  concerning  the 
theory  of  rent. 

These  men  were  friends  of  Ricardo's ;  they  were  possessed  of 
excellent  powers  of  exposition ;  and  they  contributed  in  no  small 
degree  to  the  effective  dissemination  of  his  theories. 


2.    OPTIMISTIC    TENDENCIES 

Though  one  should  refrain  from  calling  Malthus  and  Ricardo 
pessimists,  they  did  bring  out  the  dark  side  of  Smith's  thought. 
They  developed  pessimistic  tendencies.  But  while  the  English 
classical  economists  were  working  out  an  analysis  which  con- 
tained so  many  seeds  of  pessimism,  the  optimistic  tendencies 
noticed  in  the  Wealth  of  Nations  were  not  without  defenders. 
Those  who  clearly  developed  and  emphasized  these  tendencies 
were  mostly  Frenchmen  and  Americans.  From  the  Physiocrats 
on,  optimistic  views  have,  on  the  whole,  obtained  among  French 
thinkers,  though  there  have  been  some  notable  exceptions.  The 
ever-lurking  idea  of  a  beneficent  law  of  nature  or  a  natural  har- 
mony of  interests  worked  in  this  direction.  Perhaps,  too,  the 
buoyancy  of  the  national  psychology  of  the  French  might  be 
mentioned  in  this  connection,  together  with  their  well-known 
love  of  harmonious  system.  With  them,  moreover,  the  closely 
related  philosophy  of  individualism  has  been  fostered  by  a  prev- 
alence of  small  landed  proprietors,  shopkeepers,  and  manufac- 
turers, which  has  existed  down  to  the  present  day.  And  their 
long  warfare  against  the  various  phases  of  communism  and  social- 
ism, as  well  as  revolutionary  tendencies  in  general,  have  doubtless 
helped  to  confirm  this  natural  tendency.  As  for  America,  her 
"boundless"  natural  resources  and  rapid  industrial  progress  for- 
bade serious  pessimism. 

Accordingly  a  group  of  economists  who  doubted  the  law  of 
diminishing  returns  must  now  be  considered;  economists  who 
challenged  the  Ricardian  doctrine  of  rent ;  who  criticized  or  re- 
jected the  Malthusian  principle  of  population ;  and  who  believed 
that  the  interests  of  the  various  classes  are  in  harmony.  Though 
probably  less  influential  in  shaping  the  stream  of  pure  economic 
theory  than  the  less  optimistic  economists,  they  have  served  as  a 
counterpoise,  and  have  at  points  furnished  the  needed  criticism 
and  correction. 


237 


CHAPTER    Xin 
CAREY   AND    THE    "AMERICAN    SCHOOL" 

IN  so  far  as  anything  like  a  distinctively  American  School  of 
Political  Economy  existed  during  the  course  of  the  eighteenth  and 
nearly  the  whole  of  the  nineteenth  centuries,  its  characteristics 
were  those  to  be  expected  from  the  history  of  the  country  and  its 
economy.  Americans  were  filled  with  a  great  desire  to  build  up 
the  economic  independence  of  the  young  nation,  and  this  spirit 
was  coupled  with  an  optimism  born  of  apparently  inexhaustible 
natural  resources.  As  will  appear  in  a  moment,  the  thought  of 
Henry  C.  Carey  was  the  culmination  of  these  factors.  Carey 
was  to  some  extent  preceded,  however,  by  Hamilton  and  Ray- 
mond ;  and  a  paragraph  may  well  be  devoted  to  each  of  these 
earlier  thinkers.1 

Alexander  Hamilton  (1757-1804)  was  a  lawer  and  statesman, 
— one  of  the  greatest  statesmen  produced  by  America, — and  his 
economic  views  are  to  be  drawn  chiefly  from  his  state  papers  on 
finance.  During  the  years  1790  and  1791  he  discussed  in  a  lucid, 
temperate,  and  weighty  manner  the  economic  questions  which 
confronted  the  nation :  the  public  debt,  money,  banks,  protection 
to  manufactures.  Hamilton  favored  bimetallism  on  grounds  of 
expediency ;  showed  the  advantages  of  using  public  credit  and  of  a 
national  bank ;  and  forcefully  stated  the  grounds  for  government 
intervention  to  encourage  industry,  as  opposed  to  the  general 

1  Benjamin  Franklin  might  be  called  the  first  American  economist.  He 
had  some  just  ideas  on  money  and  on  population  (above,  p.  194^).  His  work 
On  the  Price  of  Corn  and  Management  of  the  Poor  was  published  in  the  London 
Chronicle  in  1766,  and  was  later  reprinted  in  M'Culloch's  collection  of  scarce 
and  valuable  tracts.  Franklin  was  personally  acquainted  with  some  of  the 
Physiocratic  thinkers,  and  held  ideas  on  productivity  similar  to  theirs. 
(See  Wetzel,  Johns  Hopkins  University  Studies,  Vol.  XIII,  pp.  425  ff.) 

238 


CAREY  AND  THE  "AMERICAN  SCHOOL"  239 

laisser-faire  position.1  In  denying  the  argument  that  labor  is 
more  productive  in  agriculture  than  manufactures,  he  clearly 
suggests  the  idea  that  land  is  but  a  form  of  capital,2  an  idea 
characteristic  of  the  "  American  School."  Other  characteristic 
features  are  the  emphasis  he  laid  upon  building  up  domestic 
manufactures  in  order  to  develop  a  home  market  for  agricultural 
produce,3  and  a  note  of  optimism. 

Hamilton  probably  exerted  some  influence  on  Freidrich  List, 
of  whom  more  later. 

Daniel  Raymond4  published  his  Political  Economy  in  1820. 
It  shows  several  points  of  similarity  to  Hamilton's  ideas,  and 
classes  its  author  as  a  forerunner  of  Carey.  He  favored  a  pro- 
tective tariff,  opposed  Malthusianism,  and  argued  at  length  for 
internal  freedom  of  trade  while  demanding  restriction  from  with- 
out. He  shows  the  school's  characteristic  animosity  toward 
England.  It  was  not  for  old  Europe  burdened  with  chronic  evils 
to  develop  the  true  political  economy,  he  maintained,  but  for 
vigorous  young  America.  Raymond  followed  Lauderdale  in 
opposing  individual  to  social  interests,  distinguishing  wealth 
from  value.  That  is,  he  opposed  the  exchange-value  idea  of 
wealth,  defining  it  rather  as  the  facility  of  acquiring  the  neces- 
saries and  conveniences  of  life  by  labor. 

1  Amer.  State  Papers,  Finance,  Vol.  I,  p.  128.  Alex.  Hamilton  als  National- 
okonom  is  the  title  of  an  inaugural  dissertation  (Halle)  by  Harrower  (1887). 

*  Ibid.,  p.  124  (1791). 

*  His  arguments  for  manufactures  were  summed  up  under  seven  heads :  — 

1.  Division  of  Labor. 

2.  Extension  of  use  of  machinery. 

3.  Additional  employment  to  those  classes  of  the  community  not  ordi- 
narily engaged  in  business,  —  women,  children,  and  others. 

4.  Promotion  of  emigration  from  foreign  countries. 

5.  Greater  scope  for  the  diversity  of  talents  and  dispositions,  which 
discriminate  men  from  each  other. 

6.  More  ample  and  varied  fields  for  enterprise. 

7.  "The  creating,  in  some  instances,  a  new,  and  securing,  in  all,  a  more 
certain  and  steady  demand  for  the  surplus  produce  of  the  soil."     (See  ibid., 
P-  125.) 

4  See  Neill,  C.  P.,  Daniel  Raymond:  An  Early  Chapter  in  the  History 
of  Economic  Theory  in  the  United  States,  Johns  Hopkins  University 
Studies,  Vol.  XV,  pp.  217-281. 


240  ECONOMIC  THOUGHT 

This  early  reaction  of  American  thinkers  against  the  classical 
School  is  a  matter  of  considerable  interest. 

These  men,  however,  are  of  very  slight  importance  in  the 
development  of  the  world's  economic  thought.  In  fact,  until  the 
late  years  of  the  nineteenth  century  the  United  States  did  little 
to  advance  the  social  sciences.  President  McCosh  of  Princeton 
could  say  that  America  had  produced  only  one  metaphysician, 
President  Edwards.  So  in  the  history  of  political  economy 
America  long  had  but  a  solitary  name,  that  of  Henry  C. 
Carey.  Able  Americans  like  Alexander  Hamilton  wrote  well  on 
politico-economic  subjects;  but  they  added  nothing  important 
to  the  science  of  Economics. 

Nor  is  it  gratifying  to  think  that  America's  best  known  repre- 
sentative in  the  history  of  political  economy  should  frequently 
be  regarded  as  great  chiefly  in  his  errors.  All  allow  that  Carey 
was  a  man  of  intellectual  ability  and  original  power ;  but  it  is  not 
so  much  by  the  truth  he  discovered  that  he  advanced  science. 
More  often  he  presented  error  in  such  manner  that  it  required 
reflection,  observation,  and  close  thinking  to  refute  it. 

Henry  Charles  Carey  was  born  in  Philadelphia  in  1793.  His 
father  was  Matthew  Carey,  an  Irishman  who  had  emigrated  from 
Dublin  on  account  of  political  persecution,  and  had  founded  a 
publishing  house  in  Philadelphia.  Henry  C.  Carey  was  well  edu- 
cated, and  became  partner  in  his  father's  business  in  1814,  taking 
upon  himself  the  entire  management  of  it  in  1821.  He  estab- 
lished the  auctions  of  the  publication  houses  which  have  become 
so  important  in  the  book  trade  in  this  country.  Having  ac- 
quired a  fortune,  he  retired  from  business  in  1835,  and  devoted 
the  remainder  of  his  life,  upwards  of  forty  years,  to  study  and 
literature,  in  particular  to  the  development  of  his  system  of 
social  and  political  science.  He  endeavored  to  employ  his  op- 
portunities in  such  a  manner  as  to  benefit  mankind.  He  died  at 
the  advanced  age  of  eighty-six,  on  the  i2th  day  of  October,  1879. 

The  following  are  his  principal  writings :  An  Essay  on  the  Rate 
of  Wages,  with  an  Examination  of  the  Causes  of  the  Difference  in 
the  Condition  of  the  Labouring  Population  throughout  the  World, 
published  in  1835  ;  Principles  of  Political  Economy,  in  three  vol- 


CAREY  AND  THE   "AMERICAN  SCHOOL"  241 

umes,  published  between  1837  and  1840.  This  work  is  an  en- 
largement of  the  work  first  named,  and  contains  the  most  im- 
portant part  of  his  system.  The  Credit  System  of  France,  Great 
Britain  and  the  United  States  appeared  in  1838 ;  An  Answer  to 
the  Questions:  What  constitutes  Currency?  What  are  the  causes 
of  its  Unsteadiness?  and  What  is  the  Remedy?  in  1840;  The 
Past,  the  Present,  and  the  Future,  in  1848 ;  and  the  Harmony  of 
Interests,  Agricultural,  Manufacturing,  and  Commercial,  in  1851. 
In  this  last  work  Carey  establishes  his  theory  of  protection. 
Two  years  later,  i.e.  in  1853,  he  published  The  Slave  Trade, 
Domestic  and  Foreign:  how  it  exists  and  how  it  may  be  extinguished, 
and  also  Letters  on  International  Copyright.  Carey's  most  im- 
portant work,  however,  was  his  Principles  of  Social  Science,  pub- 
lished in  three  volumes,  in  the  years  1857-1860.  In  this  work 
he  has  given  us  his  complete  system  and  repeated  all  the  ideas 
and  doctrines  in  his  previous  works  which  he  considered  new 
and  important.  A  condensation  of  the  work  in  one  volume 
by  Kate  McKean  was  published  in  1864,  with  the  author's 
approval. 

Value.  —  As  with  Bastiat,  so  in  Carey's  case,  value  is  the 
center  of  the  System  of  Harmony.  Carey's  was  a  labor  theory. 
Value  is  determined  by  the  amount  of  labor  required  for  produc- 
tion at  the  present  time  or  for  reproduction  at  any  given  time. 
As  he  puts  it,  value  is  caused  by  the  obstacles  to  production,  and 
measures  nature's  power  over  man.  He  is  more  consistent  than 
Bastiat  in  confining  the  term  "  utility  "  to  signify  man's  power 
over  nature,  a  conception  which  Bastiat  designated  by  the 
phrase  "  gratuitous  utility." 

Social  Progress  and  Distribution.  —  Carey  includes  land 
with  capital,  inasmuch  as  he  regards  the  former  as  a  product 
of  human  effort.1  He  concludes  that  with  progress  the  shares 
received  by  labor  and  capital  both  increase ;  but  not  at  the 
same  rate,  for  the  laborer's  share,  wages,  increases  relatively 
to  that  of  capital  (and  land).  Thus,  to  illustrate  the  idea,  he 
constructs  tables  similar  to  the  following :  — 

1  Mental  and  physical  strength  are  also  included ! 


242 


ECONOMIC  THOUGHT 


TOTAL  PRODUCT 

CAPITAL'S 
SHAKE 

LABOR'S  SHARK 

100 

80 

2O 

sd  land     

2OO 

1  2O 

80 

1OO 

I">O 

ICO 

This  conclusion  rests  upon  his  theory  of  value  and  his 
optimism :  labor  increases  in  productiveness,  less  labor  is  re- 
quired to  produce  things,  and  so  less  labor  will  be  given  for 
products  past  or  present.  Accordingly  the  value  of  man 
rises  as  compared  with  capital. 

The  whole  scheme  is  graphically  represented  thus:  — 


Slavery 


LABO  R 


Freedom 


Profits 

Interest 

Rent 


Small  amount; 
high  rate 


Large  amount; 
low  rate 


LAND 


Land 
high  in  value 


Land  valueless 


With  progress,  "  societary  circulation"  becomes  more  rapid ; 
capitalists  can  demand  only  lower  rates,  but  receive  larger 
aggregate  amounts;  wages  increase  absolutely  and  relatively; 
and  industrial  classes  tend  toward  equality ;  —  so  runs  the  har- 
monious order  of  events ! 

Rent.  —  The  three  principal  points  in  Carey's  system  to  be 
considered  further,  are  his  theories  concerning  Rent,  Population, 
and  Protection.  Protection  will  be  treated  of  in  discussing  the 
opponents  of  Adam  Smith,  for  Carey  may  be  considered  as 
ranking  among  them  in  that  regard.  Carey's  doctrines  of 
Rent  and  Population  are  aimed  at  Ricardo  and  Malthus.  It 
may  seem  strange  that  Carey  should  be  considered  a  follower  of 


CAREY  AND  THE   "AMERICAN  SCHOOL"  243 

Adam  Smith,  since  he  contends  against  Ricardo  and  Malthus, 
also  followers  of  Smith.  But  the  existence  of  contradictions  be- 
tween different  statements  made  by  Adam  Smith  has  been  pointed 
out,  and  it  was  possible  for  two  opposing  schools  to  trace  their 
origin  to  him.  Carey,  accordingly,  holds  Smith  in  considerable 
estimation,  while  condemning  his  later  English  followers  in 
strong  terms. 

In  his  Principles  of  Political  Economy,  Carey  assented  to  Ri- 
cardo's  opinion  that  the  best  lands  are  cultivated  first.  He 
did  not,  however,  even  then  acknowledge  that  Ricardo's  theory 
of  rent  was  correct ;  since  he  held  that  the  value  of  commodities 
depends  upon  the  cost  of  reproduction,  and  that  the  cost  of 
producing  agricultural  commodities,  or  food  and  raw  material, 
decreases  with  general  progress. 

He  felt,  however,  that  his  theory  was  still  incomplete.  In  the 
preface  to  his  Principles  of  Social  Science  he  says  of  the  earlier 
work :  — 

"He  had  already  satisfied  himself  that  the  theory  presented  for 
consideration  by  Mr.  Ricardo  —  not  being  universally  true  —  had 
no  claim  to  be  so  considered ;  but  it  was  not  until  ten  years  later  that 
he  was  led  to  remark  the  fact  that  it  was  universally  false.  The  real 
law,  as  he  then  saw,  was  directly  the  reverse  of  that  propounded  by 
that  gentleman,  the  work  of  cultivation  having,  and  that  invariably, 
been  commenced  on  the  poorer  soils,  and  having  passed  to  the  richer 
ones  as  wealth  had  grown  and  population  had  increased.  Here  was 
the  great  fundamental  truth  of  which  he  before  had  thought,  and  the 
one,  too,  that  was  needed  for  the  perfect  demonstration  of  the  truth 
of  those  he  previously  had  published.  Here,  too,  was  further  proof  of 
the  universality  of  natural  laws,  the  course  of  man  in  reference  to  the 
earth  itself  being  thus  found  to  have  been  the  same  that  we  see  it  to 
have  been,  in  reference  to  all  the  instruments  into  which  he  fashions 
the  several  parts  of  the  great  machine.  Always  commencing  with  the 
poorest  axes,  he  proceeds  onward  to  those  of  steel ;  always  commencing 
with  the  poorer  soils,  he  proceeds  onward  to  those  richer  ones  which 
yield  the  largest  return  to  labor,  the  increase  of  numbers  being  thus 
proved  to  be  essential  to  the  increase  in  the  supply  of  food.  Here  was 
a  harmony  of  interests  directly  opposed  to  the  discords  taught  by 
Mr.  Malthus." 


244  ECONOMIC  THOUGHT 

This  great  law,  as  Carey  calls  it,  was  first  announced  to  the 
world  in  1848  in  The  Past,  the  Present,  and  the  Future. 

Carey  maintains  that  experience  shows  that  at  first  men  take 
up  poor  soils,  because  they  are  light  and  sandy  and  easier  to 
cultivate.  Men  begin  to  cultivate  the  hills,  and  when  the 
poorest  land  is  exhausted  and  numbers  and  knowledge  have 
increased,  they  work  down  toward  the  rivers  and  make  use  of 
the  rich  valleys.  The  last  settlers,  therefore,  receive  the  best 
land.  Labor  becomes  continually  more  productive,  wealth  in- 
creases, and  man  progresses. 

The  earth  is  only  the  material  of  a  machine  which  the  agricul- 
turist makes  and  calls  a  farm.  He  can  obtain  for  it  at  most 
only  what  it  has  cost  him,  for  plenty  of  this  material  remains,  and 
others  will  construct  machines  for  themselves  rather  than  pay 
more.  In  fact,  the  farmer  cannot,  as  a  rule,  obtain  so  much  for 
his  machine  as  it  cost  him,  because  the  material  remaining  is 
better  and  man  learns  how  to  work  with  less  cost.  He  is  able  to 
obtain  only  what  it  would  cost  to  reproduce  it.  It  is  the  same  as 
with  an  ax  which  may  have  been  manufactured  ten  years  before. 
The  owner  cannot  obtain  what  it  cost  him,  but  only  what  it  would 
cost  to  make  another  one  at  the  present  time.  There  is  no  essen- 
tial difference  between  the  farmer  and  any  other  capitalist.  The 
farm  simply  represents  so  much  capital. 

Carey  seeks  the  aid  of  history  in  the  development  of  his  theories, 
but  his  knowledge  appears  to  have  been  as  weak  as  his  critical 
faculty.  It  is  true  that,  in  many  places,  people  have  first  settled 
on  high  land,  but  some  of  the  causes  which  have  led  them  to  do  so 
have  not  been  at  all  of  an  agricultural  nature,  as  for  example  the 
desire  for  defense  or  to  secure  freedom  from  disease.1  As  was 
easy  under  the  circumstances,  he  overestimated  his  discoveries 
and  gave  them  a  universality  which  does  not  belong  to  them. 
It  is  going  too  far  to  intimate  that  the  poorer  lands  are  always 
first  cultivated,  however  the  quality  is  estimated.  Can  any  one 
imagine  that  a  farmer  who  has  the  choice  would  deliberately 


1  See  Hibbard,  History  of   Agriculture   in   Dane   County,  Bui.  of    the 
University  of  Wisconsin. 


CAREY  AND  THE   "AMERICAN  SCHOOL"  245 

pick  out  that  land  for  cultivation  which  yielded  the  least  return 
to  his  labor  and  capital?  As  Lange  says:  "Even  unfruitful 
heaths  and  hillsides  are  gradually  brought  into  a  state  of  culti- 
vation. This  is  what  I  see  every  day  in  my  home  on  the  lower 
Rhine  and  in  Westphalia,  where  agriculture  and  manufactures 
flourish  together,  and  is  therefore  a  fact  which  no  Carey  can 
convince  me  to  be  untrue." 

Again,  Carey  clearly  does  not  understand  Ricardo's  theory,  or 
at  least  does  not  represent  it  fairly.  The  fruitfulness  of  land 
is  a  relative  conception.  If  a  certain  amount  of  capital  and 
labor  will  yield  more  when  applied  to  a  light  than  to  a  heavy  soil, 
the  light  soil  is,  in  the  sense  of  Ricardo's  theory  of  rent,  the  more 
fruitful,  although  it  may  be  possible  to  produce  more  on  the 
heavier  soil  by  applying  a  greater  amount  of  labor. 

It  may  be  that  Ricardo  himself  did  not  bring  this  out  with 
sufficient  clearness.  In  fact,  it  is  owing  to  Carey's  opposition 
that  Ricardo's  followers  have  been  led  to  explain  so  precisely  as 
they  have  what  is  to  be  understood  by  good,  better,  and  best 
land.  Carey  attacked  Ricardo  with  so  much  force  and  ability 
that  it  compelled  political  economists  to  go  over  again  the  whole 
ground  of  the  theory  of  rent.  The  result  has  been  a  correction 
and  amplification.  This  is  Carey's  service. 

Theory  of  Population.  —  Carey  held  Malthus  to  be  wrong,  first 
because  he  maintained  the  Malthusian  theory  was  contrary  to 
God's  attributes.  He  begins  the  chapter  (xxxviii)  on  popu- 
lation thus :  "  '  Be  fruitful  and  multiply,'  said  the  Lord,  '  and 
replenish  the  earth  and  subdue  it '  "  ;  and  after  describing  briefly 
Malthusianism,  as  he  understands  it,  adds ;  "  Can  such  things  be  ? 
Can  it  be  that  the  Creator  has  been  thus  inconsistent  with  Him- 
self ?  Can  it  be,  that  after  having  instituted  throughout  the  ma- 
terial world  a  system,  the  harmony  of  whose  parts  is  absolutely 
perfect,"  He  has  of  design,  subjected  man,  the  master  of  all,  to 
laws  which  must  produce  universal  discord?  Can  it  be,  that 
after  having  given  to  man  all  the  faculties  required  for  assuming 
the  mastery  of  nature,  it  has  been  a  part  of  His  design  to  subject 

1  Angebliche  UmwSlzung  der  Socialurissenschaft  durch  Carey. 


246  ECONOMIC  THOUGHT 

him  to  laws  in  virtue  of  which  he  must  become  nature's  slave  ? 
It  hardly  seems  necessary  to  criticize  this  position. 

A  second  argument  is  deduced  from  the  harmonious  laws  of 
nature.  As  the  earth  is  cultivated,  the  lower  races  of  animals 
die  out  and  the  supply  of  carbonic  acid  tends  to  diminish,  since 
animals  generate  it  and  plants  consume  it.  It  is  therefore  neces- 
sary that  the  numbers  of  the  human  race  should  increase  in  order 
to  furnish  the  vegetable  world  with  the  necessary  amount  of  car- 
bonic acid.  It  is  doubtful  if  Carey's  dilettanteism  in  natural 
science  ever  led  him  to  a  rasher  hypothesis.  In  the  first  place, 
aside  from  any  question  as  to  where  the  carbonic  acid  comes 
from,  it  may  be  fairly  doubted  whether  the  amount  generated 
by  man  or  the  lower  animals  has  any  appreciable  effect  on  vege- 
tation. In  the  second  place,  it  might  with  equal  propriety  be 
argued  that  the  number  of  mankind  ought  to  decrease,  since  the 
great  amount  of  coal  now  consumed  as  fuel  is  increasing  the  sup- 
ply of  carbonic  acid  gas  so  rapidly  as  soon  to  upset  all  natural 
and  harmonious  arrangements. 

A  third  argument  used  by  Carey  is  that  the  increase  of  num- 
bers denotes  increase  of  wealth.  The  more  hands,  the  more  pro- 
ducers of  wealth.  The  greater  the  number  of  inhabitants,  the 
greater  the  combination  and  division  of  labor.  To  a  certain 
extent  this  is  true.  It  must  simply  be  remembered  that  labor  is 
only  one  element  of  production,  while  increase  of  wealth  depends 
upon  the  harmonious  development  of  the  three  elements,  land, 
labor,  and  capital. 

Carey  next  argues  that  it  is  absurd  to  suppose  that  man 
alone  increases  in  geometrical  ratio.  The  lower  animals  which 
furnish  him  with  food  increase  as  rapidly  and  even  more  rapidly. 
A  single  grain  of  corn  produces  hundreds  of  grains,  and  these  if 
planted  will  increase  in  like  number.  That  is  geometrical  pro- 
gression. "  The  progeny  of  a  single  pair  of  carp,"  says  Carey, 
"  would  in  three  years  amount  to  thousands  of  billions ;  that  of 
a  pair  of  rabbits  would  in  twenty  years  count  by  millions; 
whereas  that  of  a  pair  of  elephants  would  not  number  dozens. 
When,  however,  we  reach  the  highest  form,  we  hear  of  a  new  law, 
in  virtue  of  which  man  increases  in  a  geometrical  ratio,  while  in- 


CAREY  AND  THE   "AMERICAN  SCHOOL"  247 

crease  of  the  commodities  required  for  his  use  is  limited  to  the 
arithmetical  one."  l 

J.  S.  Mill's  reply  is  to  the  point.  "  Mr.  Carey,"  he  says, 
"  expatiates  on  the  absurdity  of  supposing  that  matter  tends  to 
assume  the  highest  form  of  organization,  the  human,  at  a  more 
rapid  rate  than  it  assumes  the  lower  forms  which  compose  human 
food ;  that  human  beings  multiply  faster  than  turnips  and  cab- 
bages. But  the  limit  to  the  increase  of  mankind,  according  to 
the  doctrine  of  Mr.  Malthus,  does  not  depend  on  the  power  of 
increase  of  turnips  and  cabbages,  but  on  the  limited  quantity  of 
the  land  on  which  they  can  be  grown.  When  Mr.  Carey  can 
show,  .  .  .  not  that  turnips  and  cabbages,  but  that  the  soil 
itself,  or  the  nutritive  elements  contained  in  it,  tend  naturally 
to  multiply,  and  that  too,  at  a  rate  exceeding  the  most  rapid 
possible  increase  of  mankind,  he  will  have  said  something  to 
the  purpose.  Till  then,  this  part,  at  least,  of  his  argument 
may  be  considered  as  non-existent."  2 

A  further  argument  used  by  Carey  is  the  same  as  that  advo- 
cated by  Herbert  Spencer  in  his  Biology.  It  is  only  one  of  a 
number  of  striking  resemblances  between  them,  and  Carey's 
works  were  published  first.  The  position  taken  by  Carey  is  that 
there  is  an  antagonism  between  the  intellectual  and  generative 
functions,  and  that  the  growth  of  population  tends  to  decrease  in 
rate  as  man  becomes  more  highly  developed,  so  that  the  supply  of 
men  is  equal  to  the  demand  by  a  self-acting  law.  Carey  is  able 
to  give  no  proof  for  this  position,  however,  for  statistics  such  as  he 
cites  may  be  found  on  both  sides.  This  very  plausible  idea 
remains  a  mere  hypothesis  to  this  day. 

Philosophy  and  Method.  —  Carey's  philosophy  is,  after  all, 
rather  simple  and  easily  understood.  It  is  highly  charged 
with  that  sort  of  idealism  which  has  animated  the  growing 
American  nation.  He  believed  in  the  conquest  of  nature  by 
man :  association  spreads ;  mental  power  supercedes  mus- 
cular; man's  control  over  nature  grows.  With  similar  sig- 
nificance the  power  of  the  state  is  confidently  invoked  to  give 

1  Social  Science,  p.  57. 

1  Principles  of  Political  Economy,  Bk.  I,  Chap.  X,  §  3. 


248  ECONOMIC  THOUGHT 

America  industrial  independence.  And  there  is  manifest  an 
allied  tendency  to  take  the  subjective  viewpoint. 

Carey's  method  may  be  considered  as  a  curiosity.  It  is  truly 
unique.  It  is  a  mixture  of  all  methods.  He  says  in  one  and  the 
same  breath  that  the  English  were  wrong  in  using  too  exclu- 
sively the  deductive  method,  and  that  the  mathematical  method 
is  the  correct  one.  He  accuses  others  of  neglecting  facts  for 
hypotheses,  and  himself  immediately  makes  the  most  astound- 
ing suppositions.  He  complains  that  political  economy  has 
not  advanced  beyond  the  metaphysical  stage  of  knowledge,  and 
at  the  same  time  represents  inspiration  and  intuition  as  the  high- 
est branches  of  the  tree  of  knowledge,  since  they  are  the  sources 
of  other  sciences.  But  intuition  is  the  source  of  the  metaphysi- 
cal method  and  inspiration  of  the  theological. 

Carey's  fundamental  supposition,  the  one  which  would  per- 
haps logically  come  first,  is  that  the  laws  of  physical  science 
are  those  of  social  science,  since  one  uniform  and  harmonious 
law  governs  mind  and  matter.  The  laws  "  instituted  for  the 
government  of  matter  in  the  form  of  clay  and  sand  "  are  "  the 
same  by  which  that  matter  was  governed  when  it  took  the 
form  of  man,  or  of  communities  of  men."  It  follows  that  one 
and  the  same  method  is  to  be  pursued  in  the  investigation  of 
all  sciences,  a  conclusion  which  at  present  it  would  be  im- 
possible to  prove.  To  do  him  justice,  Carey  himself  does  not 
make  any  attempt  to  do  so. 

As  in  his  opinion  the  same  laws  govern  matter  and  mind, 
society  and  the  material  universe,  it  is  not  surprising  to  find  him 
employing  the  technical  terms  of  physical  sciences  and  making 
use  of  forced  analogies  between  social  phenomena  and  those  of 
external  nature.  He  speaks  of  man,  for  example,  as  the  mole- 
cule of  society,  and  describes  his  gregarious  disposition  as  the  law 
of  molecular  gravitation.  Because  large  cities  attract  more 
people  to  them  than  small  cities,  and  attract  more  people  from 
their  immediate  neighborhood  than  from  a  great  distance,  he  feels 
warranted  in  asserting  that  "  gravitation  is  here,  as  everywhere,  in 
the  direct  ratio  of  the  mass  and  the  inverse  one  of  the  distance." l 

1  McKean's  edition  of  Social  Science,  p.  38. 


CAREY  AND  THE   "AMERICAN  SCHOOL"  249 

A  little  reflection  shows  that  such  a  statement  is  extremely 
misleading  and  even  absurd. 

Inconsistency.  —  Carey  possessed  much  originality,  but 
lacked  a  scientific  training.  His  work  is  unsystematic  and  not 
without  glaring  inconsistencies.  Thus  he  holds  that  better  and 
better  lands  are  taken  under  cultivation  and  lower  prices  result ; 
while  elsewhere  we  are  told  that  the  growth  of  industry  makes 
the  price  of  subsistence  higher.  While  admitting  that  in  market 
centers  the  means  of  life  are  dearest,  he  asserts  that  a  dense  popu- 
lation through  the  power  of  association  makes  things  cheaper. 

Carey's  Followers  of  the  Early  American  School.  —  In  so  far 
as  an  American  School  of  political  economy  is  ever  spoken  of, 
Carey  and  his  adherents  are  meant.  This  is  perfectly  proper. 
America  has  had  no  other  body  of  political  economists  who 
could  by  any  possibility  be  considered  as  forming  a  school. 
Carey  found  warm  admirers  on  this  side  of  the  Atlantic  as 
well  as  on  the  other.  Many  were  ready  to  accept  his  system 
as  proved  beyond  the  possibility  of  doubt.  The  following  may 
be  considered  as  among  the  more  noteworthy  of  his  American 
followers. 

First,  E.  Peshine  Smith,  who  wrote  a  Manual  of  Political 
Economy,  which  was  published  in  Philadelphia  in  1853.  It  con- 
tains an  exposition  of  Carey's  system  in  the  form  of  a  textbook. 
Peshine  Smith  acknowledges  frankly  that  Carey  is  his  master, 
and  declares  his  unbounded  faith  in  him.  In  his  preface  he 
says :  "  Mr.  Carey,  by  showing  that  the  fact  is  directly  the  re- 
verse of  the  hypothesis  of  Ricardo,  and  by  establishing  the  con- 
sequences which  flow  from  it,  restored  harmony  to  what  was 
before  a  mass  of  discordances,  and  rendered  it  possible  for  the 
first  time  to  construct  a  science  out  of  what  was  a  mere  collec- 
tion of  empirical  rules."  Smith  explains  that  the  object  of  his 
manual  is  to  provide  us  with  a  truly  American  system  of  political 
economy. 

Another  author,  who,  though  possessed  of  more  ability  and  in- 
dependence, was  influenced  by  Carey  and  may  be  classed  as  a 
member  of  the  Early  American  School,  attempted  to  do  the  same. 
This  was  Francis  Bowen  (1811-1890),  formerly  professor  of  po- 


250  ECONOMIC  THOUGHT 

litical  economy  in  Harvard,  and  author  of  the  American  Political 
Economy,  published  in  1870. 

In  his  Politics  for  Young  Americans,  in  many  respects  an  ex- 
cellent little  work,  Charles  Nordhoff  expresses  strong  admira- 
tion for  Carey,  and  shows  himself  an  undoubting  disciple. 

Horace  Greeley  wrote  a  work  on  political  economy,  published 
in  Boston  in  1870,  the  full  title  of  which  indicates  its  scope: 
Essays  designed  to  elucidate  the  Science  of  Political  Economy, 
•while  serving  to  explain  and  defend  the  Policy  of  Protection  to 
Home  Industry  as  a  System  of  National  Cooperation  for  the  Ele- 
vation of  Labor.  The  book  is  well  worth  reading.1  Neither 
Bowen  nor  Greeley  was  dependent  upon  Carey  to  the  extent  that 
Nordhoff  was,  but  it  seems  that  both  should  be  considered  as  be- 
longing to  the  "  American  School." 

Others  who  might  be  mentioned  are  Stephen  Colwell,  The 
Relative  Position  in  our  Industry  of  Foreign  Commerce,  Domes- 
tic Production  and  Internal  Trade  (1850),  The  Ways  and  Means  of 
Commercial  Payment  (1858),  The  Claims  of  Labour  and  their 
Precedence  to  Claims  of  the  Trade  (1861) ;  William  Elder,  Con- 
versations on  Political  Economy  (1882) ;  and  Robert  Ellis  Thomp- 
son, Social  Science  and  National  Economy  (1875),  Elements  of 
Political  Economy  (1882),  and  Protection  to  Home  Industry  (1886). 
In  more  recent  times,  very  clear  traces  of  Carey's  influence 
appear  in  the  thought  of  Professor  S.  N.  Patten. 

There  has  been  no  small  amount  of  discussion  over  the  rela- 
tive originality  of  Carey  and  the  French  economist,  Bastiat, 
concerning  which  more  will  be  said  in  the  following  chapter. 

1  For  some  further  comment  on  Greeley's  thought  see  article  by  Com- 
mons (J.  R.),  in  Pol.  Sci.  Quarterly,  XXIV,  pp.  468-488. 


CHAPTER    XIV 
BASTIAT    AND    THE    FRENCH    OPTIMISTS 

Bastiat's  Life  and  Writings.  —  Frederic  Bastiat *  was  born 
in  1801,  in  Bayonne,  France.  It  was  planned  that  he  should 
become  a  merchant,  but  inheriting  an  estate  at  the  age  of  twenty- 
five,  he  first  tried  agriculture  with  small  success,  and  then 
devoted  the  remainder  of  his  life  to  study.  After  pursuing 
various  branches  his  attention  was  attracted  by  the  writings 
of  some  of  the  French  economists,  the  most  prominent  of 
•whom  was  J.  B.  Say,  and  political  economy  became  thereafter 
his  favorite  study. 

He  became  successively  a  justice  of  the  peace  (1831),  mem- 
ber of  the  general  council  of  his  department,  and,  unsuccessfully, 
a  candidate  for  the  Chamber  of  Deputies. 

The  articles  written  then,  and  a  little  pamphlet  written  to  sup- 
port his  candidature  for  another  office,  were  the  first  published 
expressions  of  his  demand  for  non-interference  of  government 
in  matters  of  trade  and  manufactures.  But  Bastiat's  first  im- 
portant literary  attempt  appeared  in  1844.  It  was  an  article 
in  the  Journal  des  Economistes,  "  Concerning  the  Influence  of 
English  and  French  Tariffs  on  the  Future  of  Both  Peoples."  He 
had  been  led  to  write  the  essay  by  a  journey  he  had  made  through 
Spain  and  England.  In  the  latter  country  he  had  become  ac- 
quainted with  the  leaders  of  the  Anti-Corn  Law  League,  and 
determined  to  do  for  France  what  they  had  done  and  were  doing 
for  England.  In  1845  he  published  Cobden  and  the  League  (Cob- 
den  et  la  Ligue)  to  glorify  "  the  grand  movement  "  as  he  called  it. 

1  Cf.  Bluntschli  u.  Brater,  Staatsworierbuch,  art." Bastiat"  (Mangoldt) ; 
Von  Leesen,  Frederic  Bastiat  (Miinchen,  1904) ;  Bohm-Bawerk,  Geschichte 
und  Kritik  der  Zinstheorien  (1884). 

251 


252  ECONOMIC  THOUGHT 

And  at  about  this  time  he  began  a  series  of  articles  in  the  Journal 
des  Economistes,  which  appeared  soon  after  as  a  book,  with  the 
title  Sophismes  Economiques.  An  English  translation,  called 
Sophisms  of  Protection,  was  published  in  1877.  This  is  Bastiat's 
chief  destructive  or  negative  work. 

In  1845  Bastiat  removed  to  Paris  and  became  secretary  of  the 
Free  Trade  Association  there,  and  also  took  charge  of  a  news- 
paper called  Free  Trade.  After  the  Revolution  of  February, 
1848,  Bastiat  became  a  member  first  of  the  Constituent  and  after- 
wards of  the  Legislative  Assembly,  in  which  he  devoted  his  ener- 
gies chiefly  to  fighting  the  communists  and  Socialists. 

Besides  numerous  newspaper  articles,  Bastiat  continued  to 
bring  out  at  intervals  essays  designed  to  popularize  his  ideas,  such 
as  those  on  Property  and  Law,  Justice  and  Fraternity,  —  aimed 
against  the  Socialists,  —  and  Peace  and  Liberty.  A  number  of 
these  have  been  translated  and  published  with  the  title  Essays  on 
Political  Economy.1  All  are  written  in  a  pleasing  and  luminous 
siyle,  but  have  comparatively  little  scientific  value. 
f"  A  good  illustration  of  Bastiat's  method  appears  in  his  ironical 
"  Petition  of  the  Manufacturers  of  Candles,  Wax-lights,  Lamps, 
Candlesticks,  Street  Lamps,  Snuffers,  Extinguishers,  and  of  the 
Producers  of  Oil,  Tallow,  Rosin,  Alcohol,  and,  generally,  of  every- 
thing connected  with  Lighting."  2  These  lesser  luminaries  are 
represented  as  suffering  from  intolerable  foreign  competition, 
namely,  that  of  the  sun ;  and  the  Chamber  of  Deputies  is  be- 
sought to  carry  out  their  policy  of  protection  to  home  industry 
by  stopping  all  openings  by  which  sunlight  had  been  allowed  to 
enter  houses.  The  imaginary  petitioners  go  on  to  argue  that  if 
it  were  objected  that  sunlight  is  gratuitous,  the  point  would  be 
inconsistent;  for  protection  had  been  favored  on  the  ground 
that  foreign  products  approximate  more  nearly  than  home  prod- 
i  ucts  to  the  character  of  gratuitous  gifts ! 

Thus,  brilliantly,  with  fable  and  irony,  the  masses  were  ap- 
pealed to ;  but  all  too  often  the  criticism,  that  the  opponent's 
argument  is  not  fairly  stated,  applies. 

1  New  York,  1880.         !  Economic  Sophisms,  First  Series,  Chap.  VII. 


BASTIAT  AND  THE  FRENCH  OPTIMISTS  253 

His  most  ambitious  work  and  his  attempt  at  a  more  positive 
and  constructive  contribution  was  the  Harmonies  Economiques. 
The  first  volume  alone  was  completed,  appearing  in  the  year  of 
the  author's  death,  1850. 

Economic  Harmony.  —  i.  Value.  —  Bastiat  devotes  no  chap- 
ter to  Production :  to  him  economy  lies  in  exchange  and  Econom- 
ics is  the  study  of  exchanges.  Wants,  efforts,  satisfactions,  — 
this  is  the  round.  But  men  commonly  obtain  satisfaction  by 
giving  something  in  exchange  for  what  is  desired.  This  involves 
the  question  of  value,  and,  as  with  Carey,  value  is  Bastiat's 
starting  point.  He  founded  his  theory  upon  his  definition  of 
this  term. 

Bastiat  criticizes  various  theories  of  value  which  had  pre- 
ceded him:  utility,  scarcity,  labor,  difficulty  of  acquirement, 
estimation,  or  judgment  are  all  one-sided,  though  not  totally 
wrong,  as  bases  for  determining  value.  Both  the  utility  theory 
of  Say  and  the  labor  theory  of  Ricardo  err  in  placing  value  in  the 
material  of  things.  There  are  two  kinds  of  utility  :  gratuitous 
and  onerous.  The  former  consists  of  the  materials  and  forces 
which  are  the  gift  of  nature,  and  nothing  can  be  exacted  in  ex- 
change for  it.  Onerous  utility  lies  in  a  service  of  man  to  man, 
and  demands  a  service  in  return.  Now  to  place  value  in  matter 
would  lead  to  the  conclusion  that  the  gratuitous  utilities  of  na- 
ture may  confer  value.  This  would  mean  that  landowners  would 
have  property  in  the  gratuities  of  nature,  something  which  Bas- 
tiat in  his  desire  to  defend  the  present  order  against  the  Socialists 
will  not  admit.  It  would  be  "as  little  justifiable  as  compre- 
hensible." The  same  error,  too,  would  deny  productivity  to 
services  which  do  not  result  in  material  things.  Wants  and 
satisfactions  are  not  sufficiently  commensurable  to  serve  as 
determinants  of  value,  but  he  grants  that  utility  is  the  basis  of 
value  if  only  we  do  not  make  it  an  intrinsic  property  of  things. 
Ricardo's  necessity  for  excepting  goods  whose  supply  is  abso- 
lutely limited  shows  that  a  general  law  based  on  labor  cost  is 
impossible.  Moreover,  how  are  fluctuations  in  the  value  of 
things  to  be  accounted  for  if  their  value  is  determined  by  the 
labor  expended  upon  them? 


254  ECONOMIC  THOUGHT 

Bastiat  would  not  destroy  the  labor  and  utility  theories,  but 
would  correct  one-sidedness  by  uniting  them.  He  comes  very 
near  to  the  labor-cost  theory  when  he  holds  that  value  lies  in 
"  effort,"  but  he  would  make  effort  a  broader  term  than  labor, 
though  it  is  not  very  clear  just  what  it  includes.  In  exchanging 
services  or  goods  only  effort  or  onerous  utility  is  considered,  as 
natural  forces  are  gratuitous.  The  difficulty  arising  from  fluctu- 
ation in  the  value  of  stored-up  labor  he  meets  by  substituting  for 
effort  expended  the  effort  saved  to  the  recipient  or  purchaser, 
an  idea  apparently  suggested  by  Adam  Smith's  shift  from  the 
labor-cost  to  the  labor-exchange  point  of  view.1  But  to  him  this 
means  a  service.  Hence  Bastiat's  formula :  "  Value  is  the  rela- 
tion of  two  services  exchanged."  The  effort  saved,  or  service, 
is  the  product  of  one  man ;  the  want  and  its  satisfaction  are  felt 
by  another ;  the  service,  then,  commands  a  compensation  in  the 
shape  of  some  counter  service. 

2.  The  Interests  of  Labor  and  Capital;  Land  Value,  —  Al- 
though it  is  not  material,  value  may  pass  into  material.  It  is 
then  capable  of  accumulation,  that  is  to  say,  of  becoming  capital. 
But  it  is  to  be  noticed  that  "  where  value  has  passed  from  the 
service  to  the  product,  it  undergoes  in  the  product  all  the  risks 
and  chances  to  which  it  is  subject  in  the  service  itself."  It  may 
rise  or  it  may  sink  until  it  departs  altogether,  as  might  have  hap- 
pened to  the  service.  The  tendency,  however,  of  value  fixed  in  a 
commodity,  that  is  to  say  in  capital,  is  to  sink.  "  The  man  who 
makes  a  cup  to-day,"  says  Bastiat,  "  for  the  purpose  of  selling  it 
a  year  hence,  confers  value  on  it,  and  that  value  is  determined 
by  that  of  the  service  —  not  the  value  which  the  service  pos- 
sesses at  the  present  moment,  but  that  which  it  will  possess  at  the 
end  of  the  year."  Now  owing  to  constant  industrial  improve- 
ments the  probability  is  that  the  cup  can  be  produced  cheaper  at 
the  end  of  the  year  than  now.  Thus,  according  to  Bastiat,  capi- 
tal, which  is  only  accumulated  services,  stands  at  a  disadvantage 
compared  with  labor,  that  is,  present  services.  As  society  pro- 
gresses,—  and  Bastiat  thinks  of  it  as  always  progressing, — 
capital  continues  to  occupy  a  more  and  more  disadvantageous 

1  See  above,  pp.  167  f. 


BASTIAT  AND  THE  FRENCH  OPTIMISTS  255 

position  with  regard  to  labor.  Labor  has  then  no  reason  to  be 
dissatisfied. 

The  rent  of  land,  too,  is  only  a  return  for  past  services.  The 
original  and  indestructible  powers  of  the  soil  are  not,  as  Ricardo 
would  have  us  believe,  the  source  of  rent.  No  remuneration  can 
be  demanded  for  these,  because  they  are  the  gift  of  nature.  Land 
value  represents  previous  services,  such  as  the  clearing  away  of 
forests,  drainage,  building  of  fences,  fertilizing  the  soil,  etc. 
But  formerly,  on  account  of  the  greater  imperfection  of  labor's 
methods  and  appliances,  it  required  more  labor  than  would  now 
be  necessary  to  render  such  services.  The  landlord  receives  a 
return  only  for  the  present  value  of  his  improvements.  Sooner 
than  give  him  more,  people  will  take  up  new  land  and  improve 
that.  "  This  shows  how  empty,"  says  Bastiat,  "  are  the  decla- 
mations which  we  hear  continually  directed  against  the  value  of 
landed  property.  That  value  differs  from  other  values  in  noth- 
ing —  neither  in  its  origin  nor  its  nature,  nor  in  the  general  law 
of  its  slow  depreciation,  as  compared  with  the  labor  which  it 
originally  cost."  l 

Wage-earners  have  every  reason  to  be  satisfied  with  their 
lot.  Production  ever  becomes  easier  and  more  abundant,  and  the 
share  they  receive  is  continually  augmented.  From  this  "  ameli- 
oration of  the  laborer's  lot  found  in  wages  themselves  and  in  the 
natural  laws  by  which  wages  are  regulated,"  Bastiat  draws  two 
conclusions  and  one  corollary. 

"  i  st.  The  laborer  tends  to  rise  to  the  rank  of  a  capitalist 
and  employer. 

"  ad.    Wages  tend  to  rise. 

"  Corollary — The  transition  from  the  state  of  a  paid  workman 
to  that  of  an  employer  becomes  constantly  less  desirable  and 
more  easy."  2 

According  to  Bastiat,  the  postponement  of  consumption  is  a 
service  rendered  by  the  capitalist  for  which  he  deserves  payment 
or  interest.3  It  might  be  supposed,  then,  that  capitab'sts  would 

1  Harmonies  Economiques,  I,  p.  150.  2  Ibid.,  II,  p.  73. 

3  For  Bastiat's  theory  of  interest  and  a  criticism  see  Bohm-Bawerk, 
Capital  and  Interest,  Bk.  IV,  Chap.  III. 


256 


ECONOMIC  THOUGHT 


have  ground  for  complaint,  but  this  is  not  so.  Harmony  of  in- 
terests is  complete.  Capitalists  receive  a  smaller  relative  share 
of  the  produce,  but  a  greater  one  absolutely  on  account  of  the 
growth  of  capital.  Bastiat  illustrates  this  by  letting  the  figures 
1000,  2000,  3000,  and  4000  represent  the  total  production  of 
society  at  different  epochs.  The  division  between  laborer  and 
capitalist  would  then,  he  maintains,  take  place  in  somewhat 
the  following  manner :  — 


TOTAL  PRODUCE 

SHAKE  OF 
CAPITAL 

SHAKE  or 
LABOR 

First  period    

IOOO 

t;oo 

"JOO 

Second  period      
Third  period  

2OOO 
3OOO 

800 

10^0 

I2OO 
in  CQ 

Fourth  period      

4000 

I2OO 

2800 

The  share  of  the  capitalist,  it  is  seen,  descends  from  50  per  cent 
to  40,  35,  and  30  per  cent,  while  that  of  the  laborer  rises  from 
50  per  cent  to  60,  65,  and  70  per  cent. 

The  proof  that  the  relative  share  of  capital  decreases  Bastiat 
finds  in  the  fact  that  the  rate  of  interest  continues  to  grow  lower 
as  society  advances.  On  the  other  hand,  the  absolute  share  of 
capital  must  increase,  because  capitalists  would  destroy  or  con- 
sume a  part  of  their  capital  if  they  could  obtain  more  for  a  part 
than  for  the  whole. 

It  does  not  appear  to  occur  to  Bastiat  that  the  profits  of  capital 
may  decrease  because  the  aggregate  product  of  labor  and  capital 
is  less.  Let  the  supposition  be  made  that  a  given  amount  of 
capital  and  labor  produce  at  one  period  1000  and  at  a  later 
one  only  800.  Let  the  share  of  capital  in  the  first  period  be 
500  and  in  the  second  450.  The  absolute  share  of  capital  would 
then  have  decreased,  while  its  share  relatively  to  labor  would  have 
increased.  This  supposition  is  quite  as  possible  as  that  of  Bastiat. 
It  might  be  said  that  in  the  beginning  of  a  society  the  most  pro- 
ductive employments  of  capital  and  labor  were  sought  out,  and 
that  afterwards  capital  and  labor  were  obliged  to  perform  work 


BASTIAT  AND  THE  FRENCH  OPTIMISTS  257 

which  would  formerly  have  been  regarded  as  unprofitable.  Bas- 
tiat  makes  no  such  supposition  as  this,  nor  will  he  allow  the 
thought  of  it  to  enter  his  mind,  because  it  would  interfere  with 
his  presupposed  harmony  and  divine  order  of  affairs. 

How  marked  the  contrast  between  Bastiat's  general  scheme 
and  Ricardo's !  The  latter  believed  that  prices  of  raw  materials 
and  subsistence  rise,  and  with  them  rents,  this  rise  being,  in  a 
sense,  at  the  expense  of  the  other  shares  in  distribution.  But 
Bastiat,  like  Carey,  maintained  that  the  shares  of  both  labor 
and  capital  (including  land)  increase,  there  being  a  more  rapid 
increase  in  wages. 

3.  Population.  —  On  the  subject  of  population  Bastiat  is  de- 
cidedly confused  and  inconsistent.     Thus  in  the  first  part  of  his 
Harmonies  he  sets  out  to  deprive  the  Malthusian  principle  of  all 
pessimistic  aspects,  arguing  that  the  augmentation  of  population 
increases  the  number  and  effectiveness  of  exchanges,  and  hence 
results  in  a  larger  share  in  the  gratuitous  gifts  of  nature.     But  in 
the  second  part,  in  his  chapter  on  Population,  he  takes  the  more 
common  view.    Like  Malthus,  he  hopes  that  the  standard  of  liv- 
ing of  the  laboring  classes  may  rise,  so  that  their  numbers  will 
increase  less  rapidly.    And  he  maintains  that  all  sensible  people 
follow  the  Malthusian  idea,  in  postponing  marriage  until  a  com- 
petency has  been  acquired. 

4.  Government  Intervention.  —  As  everything  in  the  field  of 
value  and  distribution  tends  to  work  out  harmoniously  if  left 
alone,  Bastiat  considered  that  the  science  of  government  is  ex- 
ceedingly simple.     Government  performs  its  functions  by  the 
exercise  of  force,  and  there  is  only  one  place  where  it  has  in  his 
opinion  a  moral  right  to  exercise  force.     That  is  in  establishing 
justice.    The  action  of  government  is  "  essentially  limited  to  the 
maintenance  of  order,   security,   and  justice.     All  action   of 
government  beyond  this  limit  is  a  usurpation  upon  conscience, 
upon  intelligence,  upon  industry ;  in  a  word  upon  human  lib- 
erty." l     This,  of  course,  begs  the  question  as  to  the  justice 
of  present  arrangements,  and  assumes  the  state  of  natural 
harmony  of  which  he  conceived  to  exist  in  fact. 

1  Op.  dt.,  I,  p.  4. 
s 


258  ECONOMIC  THOUGHT 

Bastiat  and  Carey.  —  To  a  great  extent  Bastiat  stood  on  the 
shoulders  of  Say,  Dunoyer,  and  the  American,  Carey.  List,  too, 
might  be  mentioned  in  this  connection.  There  has  been  some 
considerable  dispute  between  the  friends  of  Carey  and  those  of 
Bastiat l  as  to  which  of  the  two  originated  their  system 
of  harmony.  Bastiat  has  been  accused  repeatedly  of  literary 
theft.  Their  doctrines  and  even  their  language  are  undoubtedly 
often  strikingly  similar.  The  reader  will  remember  Bastiat's 
theory  that  the  share  of  labor  increases  both  relatively  and  abso- 
lutely, while  that  of  the  capitalist  increases  absolutely  but  de- 
creases relatively;  and  how  he  illustrated  it  mathematically. 
This  maybe  compared  with  the  following  paragraph, taken  from 
Carey's  Social  Science  :  — 

"In  the  early  period  of  society,  when  land  is  abundant  and  people 
are  few  in  number,  labor  is  unproductive,  and  of  the  small  product, 
the  land-owner  or  other  capitalist  takes  a  large  proportion,  leaving  to 
the  laborer  a  small  one.  The  large  proportion  yields,  however,  but  a 
small  amount,  and  both  laborer  and  capitalist  are  poor  —  the  former 
so  poor  that  he  is  everywhere  seen  to  have  been  a  slave  to  the  latter. 
Population  and  wealth,  however,  increasing,  and  labor  becoming 
more  productive,  the  land-owner's  share  diminishes  in  its  proportion, 
but  increases  in  its  amount.  The  laborer's  share  increases  not  only 
in  its  amount,  but  also  in  its  proportion,  and  the  more  rapid  the  increase 
in  the  productiveness  of  his  labor,  the  greater  is  the  proportion  of  the 
augmented  quantity  retained  by  him ;  and  thus,  while  the  interests 
of  both  are  in  perfect  harmony  with  each  other,  there  is  a  constant 
tendency  towards  the  establishment  of  an  equality  of  condition."  2 

Bastiat  and  Carey  also  have  essentially  the  same  ideas  as 
regards  value  and  utility ;  and  there  is  a  close  parallelism  in  their 
theories  of  the  origin  of  land  value.  Carey  criticizes  Bastiat's 
definition  of  value,  it  is  true,  but  he  is  able  to  do  it  only  because 
Bastiat  did  not  express  himself  with  sufficient  accuracy.  They 
both  mean  the  same. 

1  Diihring  and  Lange.    In  the  Journal  des  Economises  for  1851  Carey  and 
Bastiat  themselves  crossed  swords  on  the  matter. 
9  McKean's  ed.,  p.  31. 


BASTIAT  AND  THE  FRENCH  OPTIMISTS  259 

Though  some  have  argued  that  both  writers  were  quite  original 
in  reaching  the  same  conclusions,  it  seems  improbable  that  this  is 
the  case.  It  is  the  general  consensus  of  the  best  opinion  that 
Bastiat  was  more  deeply  indebted  to  Carey  than  he  would  admit, 
and  that  he  erred  in  not  giving  Carey  credit  in  connection  with 
his  statement  of  the  law  of  distribution  and  his  discussion  of  land 
value.  On  the  general  theory  of  value,  however,  Bastiat's  main 
ideas  seem  to  have  been  formed  independently  of  Carey.1  Carey 
impresses  the  reader  as  decidedly  the  more  original,  and  on  the 
whole  his  work  antedated  Bastiat's.  It  will  be  remembered  that 
his  Principles  of  Political  Economy  and  Past,  Present,  and  Future, 
containing  the  essentials  of  his  doctrine,  appeared  in  1837  and 
1848 ;  while  Bastiat's  constructive  work  came  in  1850. 

Criticism.  —  In  general  criticism  of  Bastiat's  work  it  is  to  be 
observed  that  he  was  greatly  influenced  by  the  controversial 
atmosphere  in  which  he  lived.  His  doctrines  appear  unduly 
warped  by  his  propaganda  against  protectionism  and  Socialism, 
while  underlying  all  his  argument  is  the  unsound  idea  that  the 
organization  of  society  under  competition  is  the  most  perfect 
that  can  be  effected  or  even  conceived  of. 

His  reasoning  on  land  value  is  quite  erroneous.  To  hold  that 
the  value  of  land  equals  the  expenses  of  rendering  it  accessible, 
clearing,  fencing,  etc.,  is  untenable  in  the  light  of  facts.  For 
example,  much  land  is  now  worth  far  less  than  such  expenditures. 
His  view  overlooks  the  fact  that  such  outlays  are  made  with  the 
idea  that  they  will  pay  for  themselves,  and  something  more  — 
that  long  ago  they  have  been  replaced  and  ceased  to  operate. 
The  value  of  a  good  Illinois  farm  or  a  New  York  lot  is  far  greater 
than  such  expenses.  It  is  vain  to  argue  that  even  the  gifts  of 
nature  cannot  be  appropriated  and  be  made  the  basis  of  a  pay- 
ment to  the  owner.  That  is  not  the  way  to  meet  Socialistic 
attacks. 

In  his  Sophisms  Bastiat  cries:    You  protectionists  cannot 

apply  your  theory  as  a  general  one.     As  between  individuals, 

families,  communities,  and  provinces  you  accept  free  trade. 

But  you  say  the  political  economy  of  individuals  is  not  that  of 

1  See  Von  Leesen,  Fr6d6ric  Bastiat,  pp.  15,5  f. 


260  ECONOMIC  THOUGHT 

peoples!  And  just  here  appears  his  absolutism.  He  does  not 
regard  national  lines.  He  follows  to  the  extreme  the  cosmopoli- 
tanism of  the  Classical  School,  many  of  the  other  doctrines  of 
which  he  attempts  to  rectify. 

Bastiat's  limitations  are  well  exhibited  in  his  theory  of  value. 
The  words  "  efforts  "  and  "  services  "  he  uses  almost  as  fetishes, 
but  they  explain  nothing.  If  service  means  more  than  labor, 
how  much  more?  What  determines  the  value  of  the  service? 
Bastiat  gives  us  no  adequate  answer.  Moreover,  by  confining 
himself  narrowly  to  exchange  value  he  leaves  out  of  consideration 
the  important  phenomena  of  value  in  use,  or  utility. 

On  account  of  its  shallowness  and  manifest  disregard  of  certain 
facts  of  social  life,  Bastiat's  writing  has  had  little  influence  on  the 
leaders  of  economic  thought.  Its  popular  influence  has,  how- 
ever, been  remarkable,  and  it  is  this  which  has  justified  the  de- 
votion of  so  much  space  to  it.  It  owed  its  existence  to  a  great 
extent  to  the  extreme  free  trade  party  in  England,  called  on 
the  Continent  generally  the  Manchester  Party,  from  the  city 
where  it  has  its  stronghold.  But  Bastiat's  system  has  also  re- 
acted upon  this  party,  leading  it  to  greater  extremes  in  doctrine. 
In  Germany  a  party  was  also  formed  between  the  years  1840 
and  1850,  opposing  all  interference  of  government,  and  accept- 
ing Bastiat  without  reserve.  Prominent  members  of  this  party 
were  Prince-Smith,  an  Englishman  by  birth,  Fancher,  Victor 
Bohmert,  and  Max  Wirth. 

Bastiat  did  not  deny  that  the  poor  and  unhappy  existed, 
though  he  found  the  ground  for  their  condition  in  a  mere  lack  of 
freedom,  and  bade  the  laborer  be  content  and  grateful  to  the 
capitalist.  His  followers  hi  Germany  went  still  further.  In 
their  admiration  of  our  present  social  organization,  they  denied 
the  existence  of  a  social  problem.  The  world  looked  so  happy 
to  them  that  they  could  find  no  poor  man  in  it.  It  became  at  one 
time  quite  the  thing  to  speak  of  the  so-called  poor  man.  Cliffe 
Leslie  says :  "  Political  writers  and  speakers  of  this  school  have 
long  enjoyed  the  double  satisfaction  of  beholding  in  themselves 
the  masters  of  a  difficult  study,  and  of  pleasing  the  powers  that 
be,  by  lending  the  sanction  of  science  to  all  established  institu- 


BASTIAT  AND  THE   FRENCH  OPTIMISTS  261 

tions  and  customs,  unless,  indeed,  customs  of  the  poor.  Instead 
of  a  science  of  wealth,  they  give  us  a  science  for  wealth"  l 

The  optimistic  side  of  Adam  Smith's  political  economy  is, 
to  the  cursory  reader,  at  least,  the  most  striking.  Of  such  a 
nature  is  his  doctrine  that  the  unrestrained  action  of  individual 
self-interest  leads  of  itself  to  a  happy  and  harmonious  social 
order.  If  this  and  similar  ideas  of  Adam  Smith  are  separated 
from  those  parts  of  his  work  which  modify  and  limit  them,  we 
have  indeed  a  happy  optimism. 

Formerly  man  had  been  taught  that  this  life  was  a  struggle 
into  which  peace  and  good  will  could  be  brought  only  by  sacri- 
fice and  generous  self-denial ;  and  he  had  been  instructed  to 
look  forward  to  a  future  state  as  one  which  would  harmonize 
adverse  interests  and  render  duty  uniformly  agreeable.  But 
thinkers  like  Carey  and  Bastiat  maintained  or  implied  that  the 
reign  of  happiness  had  not  appeared  on  earth  largely  because 
man  had  perversely  restrained  himself  and  had  not  systematically 
and  scientifically  pursued  the  policy  of  selfishness. 

1  See  his  article  in  the  Fortnightly  Review,  for  Sept.  i,  1873,  on  "  Politi- 
cal Economy  in  Germany." 


3.    OTHER   EXPOSITORS 

Thus  far  the  discussion  of  the  followers  of  Adam  Smith  has 
served  to  emphasize  the  development  of  two  divergent  lines  of 
thought  with  regard  to  the  working  out  of  economic  forces. 
One  has  brought  out  the  existence  of  conflict,  and  the  harsher 
possibilities ;  the  other  has  seen  ultimate  harmony  and  benefi- 
cence in  all.  As  already  stated,  the  pessimistic  tone  of  some 
has  been  due  rather  to  the  mode  of  their  statement  than  to  the 
logic  of  their  thought,  and  the  classification  into  optimists  and 
pessimists  does  not  have  the  deepest  and  most  clear-cut  signifi- 
cance in  economic  theory.  Without  attempting  to  push  it 
further,  then,  other  followers  of  the  Smithian  Economics  may 
be  considered  without  regard  to  the  hopefulness  of  their  view- 
point. Indeed,  it  would  be  difficult  to  classify  a  number  of 
them  on  that  basis. 

And  first  a  thinker  in  the  direct  line  of  evolution  of  the  Eng- 
lish Classical  School  deserves  attention,  one  who  wrought  inde- 
pendently, but  on  the  whole  within  the  framework  of  Smith's 
doctrines  as  developed  by  Ricardo. 


262 


a.   IN  ENGLAND 

CHAPTER  XV 
SENIOR   AND   THE   ABSTINENCE   THEORY 

NASSAU  WILLIAM  SENIOR  (1790-1864)  by  exact  and  acute  rea- 
soning made  such  additions  to  economic  theory  that  a  chapter 
must  be  devoted  to  him.  During  the  greater  part  of  his  life 
he  was  outside  academic  circles,  and  he  did  not  write  a  complete 
treatise;  but  he  brought  so  keen  and  rigid  an  analysis  to  bear 
that  his  limited  application  was  unusually  fruitful.  He  was  for 
a  time  professor  at  Oxford,  and  was  a  member  of  the  Royal  Com- 
mission of  1832,  established  to  examine  the  operation  of  the  poor 
laws  and  report  remedies. 

His  principal  work1  was  An  Outline  of  Political  Economy 
(1836)  which  appeared  in  the  Encyclopedia  Metropolitana,  but 
was  also  published  separately.  To  this  outline  attention  will 
be  largely  confined;  and  no  attempt  will  be  made  to  make  a 
complete  statement  of  Senior's  views,  but  chiefly  those  in  which 
he  made  distinct  contributions. 

The  Scope  of  Political  Economy.  —  First  is  to  be  noted  his 

1  Other  writings  of  importance  are :  — 

An  Introductory  Lecture  on  Political  Economy,  1827. 

Three  Lectures  on  the  Transmission  of  the  Precious  Metals  and  the  Mer- 
cantile Theory  of  Wealth,  1828. 

Two  Lectures  on  Population,  1831. 

Three  Lectures  on  the  Cost  of  Obtaining  Money,  and  of  Some  Effects  of 
Private  atid  Government  Paper  Money,  1830. 

Three  Lectures  on  the  Rate  of  Wages,  1831. 

Four  Introductory  Lectures,  1852. 

Summary  of  the  Ambiguities   in  the  terms  of  Political  Economy,  ap- 
pended to  Whately's  Logic. 

263 


264  ECONOMIC  THOUGHT 

idea  of  Economics  as  a  science.  In  his  own  words :  "  The  sub- 
ject treated  by  the  Political  Economist  ...  is  not  Happiness, 
but  Wealth ;  his  premises  consist  of  a  very  few  general  propo- 
sitions, the  result  of  observation,  or  consciousness,  and  scarcely 
requiring  proof,  or  even  formal  statement;  .  .  .  and  his  infer- 
ences are  nearly  as  general,  and,  if  he  has  reasoned  correctly, 
as  certain  as  his  premises."  l  Senior  went  very  far  in  narrowing 
the  scope  of  the  science  and  in  making  it  an  abstract  and  deduc- 
tive one,  and  in  this  his  influence  on  later  writers  was  consider- 
able, e.g.  J.  S.  Mill  and  Jevons.  He  would  have  had  the  econo- 
mist refrain  from  a  single  word  of  advice  and  keep  clear  of  morals 
and  political  science.  Then,  within  his  proper  field,  he  must 
confine  himself  to  deductions  from  a  few  postulates. 

Senior  allowed  Political  Economy  four  postulates:  (i)  a 
universal  desire  to  obtain  more  wealth  with  the  least  sacrifice ; 
(2)  the  Malthusian  principle  of  population ;  (3)  "  that  the 
powers  of  Labour,  and  of  the  other  instruments  which  produce 
Wealth,  may  be  indefinitely  increased  by  using  their  Products 
as  the  means  of  further  Production  " ;  (4)  the  law  of  diminish- 
ing returns  from  land.2 

In  his  subdivision  of  the  field  of  the  science  it  seems  clear  that 
he  foreshadows  Mill's  distinction  between  the  laws  of  produc- 
tion and  distribution.3 

Senior's  emphasis  of  the  need  for  accurate  definitions  and  his 
criticisms  of  predecessors  on  this  score  are  noteworthy. 

Value.  —  Some  of  his  best  work  lies  in  the  field  of  value,  and 
especially  in  the  analysis  of  cost  of  production.  Value  he 
defines  as  "  that  quality  in  anything  which  fits  it  to  be  given  and 
received  in  exchange."  The  forces  which  determine  it  fall  into 
two  sets :  the  demand  and  supply  of  the  one  good,  and  the  de- 
mand and  supply  of  that  for  which  it  is  exchanged.  Supply, 
however,  is  somewhat  unsatisfactorily  defined  as  equaling  the 
obstacles  which  limit  quantity.  Senior  is  here  filled  with  the 
idea  that  it  is  merely  limitation  of  supply,  as  such,  that  functions 

1  Political  Economy  (reprint,  6th  ed.,  1872),  p.  2.     See  also  Four  In- 
troductory Lectures  for  his  views. 

2  Ibid.,  p.  26.  » Ibid.,  p.  3. 


SENIOR  AND  THE  ABSTINENCE  THEORY  265 

in  value,  and  justly  criticizes  Ricardo's  classification  1  for  omit- 
ting this  idea  in  the  case  of  reproduceable  commodities. 

Abstinence  and  Capital  Formation.  —  Just  here  comes 
Senior's  great  contribution,  the  concept  of  abstinence  as  a  cost 
of  production.  With  equal  competition  goods  sell  for  their  cost 
of  production,  which  cost  equals  labor  plus  the  abstinence  of  the 
capitalist.2  Abstinence  is  "  a  term  by  which  we  express  the 
conduct  of  a  person  who  either  abstains  from  the  unproductive 
use  of  what  he  can  command,  or  designedly  prefers  the  produc- 
tion of  remote  to  that  of  immediate  results."  3  In  the  forma- 
tion of  capital  "  some  delay  of  enjoyment  must  in  general  have 
reserved  it  from  unproductive  use."  This  cost,  then,  as  well  as 
the  sacrifice  of  labor,  is  an  obstacle  limiting  production,  and  so, 
through  supply,  entering  value.4 

The  significance  of  this  new  factor  is  apparent.  Ricardo, 
with  some  misgivings,  had  in  his  formal  writings  left  labor  as 
the  determinant  of  exchange  value,  profits  being  a  sort  of  residual 
claimant.  His  followers,  James  Mill  and  M'Culloch,  took  the 
bull  by  the  horns  and  expressly  reduced  all  to  labor,  including 
even  the  growing  value  of  wine  or  trees.  Lauderdale  had 
attacked  the  notion,  making  capital  an  independent  factor 
which  replaces  labor  rather  than  supports  it;  and  Malthus 
made  profits  an  independent  cost  along  with  wages.  But 
there  had  been  no  analysis  which  would  make  capital  coordi- 
nate with  labor  as  a  cost  factor  in  production,  and  the  labor 
theory  was  for  the  time  dominant. 

Senior  may  have  caught  the  idea  of  abstinence  from  G.  P. 
Scrope,  who  wrote  three  years  prior  to  his  article.  Scrope  states 

1  Above,  p.  215. 

2  Political  Economy,  p.  24.     Senior,  however,  confuses  value  of  labor 
(wages)  with  labor  pain,  the  latter  being  Ricardo's  idea. 

3  Ibid.,  p.  58. 

4  Bohm-Bawerk  in  his  Capital  and  Interest  (p.  285  of  Smart's  translation) 
accuses  Senior  of  making  his  interest  theory  part  of  a  theory  of  value  in  which 
he  explains  the  value  of  goods  by  their  costs ;  and  concludes  that  as  some 
goods  are  not  reproduceable,  it  is  but  a  partial  theory.     He  overlooks  Senior's 
express  insistence  on  limitation  of  supply  as  distinguished  from  cost  of 
production. 


266  ECONOMIC  THOUGHT 

that  the  profit  of  the  owner  of  capital  is  "  a  compensation  to  him 
for  abstaining  for  a  time  from  the  consumption  of  that  portion  of 
his  property  on  his  personal  gratification."  1  However  that  may 
be,  the  development  and  application  of  it  are  his  own,  and  one 
of  his  chief  claims  to  lasting  fame  rests  on  this  basis  which  he 
laid  for  the  independent  determination  of  interest. 

Cost  vs.  Expense ;  Past  vs.  Present  Labor.  —  Such  being  the 
cost  of  production,  according  to  Senior  it  must  be  noted  that  he 
distinguishes  "cost"  from  "expense,"  the  former  referring  to 
"  conduct,"  —  "  exertion  "  and  "  sacrifice,"  —  the  latter  to 
reward  for  such  conduct  in  the  shape  of  wages  and  profits. 

Finally,  Senior  emphasized  a  point  generally  thought  of  in 
connection  with  Jevons,  namely,  the  fact  that  it  is  not  past  labor 
which  enters  into  the  determination  of  value ;  but  that  it  is  the 
amount  of  sacrifice  that  production  would  require  at  the  time 
of  exchange.2  Ricardo  and  James  Mill  are  criticized  here. 

Utility  and  Demand.  —  But  Senior  did  not  leave  the  demand 
side  without  adding  something.  Demand,  he  shows,  rests  on 
utility,  or  the  "  degree  "  in  which  a  thing  is  desired.  And  he 
comes  near  to  stating  a  law  of  diminishing  utility.  "  Not  only 
are  there  limits  to  the  pleasures  which  commodities  of  any  given 
class  can  afford,  but  the  pleasure  diminishes  in  a  rapidly  increas- 
ing ratio  long  before  those  limits  are  reached.  Two  articles 
of  the  same  kind  will  seldom  afford  twice  the  pleasure  of  one, 
and  still  less  will  ten  give  five  times  the  pleasure  of  two."  3 

Limitation  of  supply,  however,  remained  with  Senior  the 
chief  factor  in  value;  and  in  stating  the  interrelation  of 
demand  and  supply  he  says  that  the  utility  or  demand  of  a 
thing  "  is  principally  dependent  on  the  obstacles  which  limit 
its  supply." 

Monopoly  Theory.  —  Closely  connected  with  the  theory  of 
value  is  that  of  monopoly,  and  Senior's  treatment  of  monopoly 

1  Principles  of  Political  Economy  deduced  from  the  Natural  Laws  of  Social 
Welfare  and  applied  to  the  Present  State  of  Britain,  p.  146.      (London,  1833.) 
Scrope  lays  great  emphasis  upon  time. 

2  Pol.  Econ.,  p.  98.     His  statement  is  better  than  Jevons',  as  the  latter 
writer  confines  himself  to  the  negative  part  of  it.  *  Ibid.,  p.  12. 


SENIOR  AND  THE  ABSTINENCE  THEORY  267 

is  notable.1  He  opposes  the  idea  of  monopoly  strictly  and 
logically  to  that  of  "  equal  competition" :  if  every  one  has  free  and 
equal  access  to  the  factors  of  production,  there  is  no  monopoly ; 
but  wherever  this  is  not  true  an  element  of  it  exists.  Such  is  the 
case  whenever  land  plays  a  part :  commodities  produced  with 
the  aid  of  natural  agents  are  monopoly  products,  and  the  person 
who  appropriates  a  natural  agent  is  a  monopolist. 

Senior  divides  monopolies  into  four  classes.  First  come  those 
which  are  not  exclusive,  but  exist  because  a  producer  has  the 
advantage  of  lower  costs,  as,  for  example,  Arkwright  in  producing 
yarn.  This  assumes  the  power  to  increase  the  product  indefi- 
nitely. Secondly,  there  are  absolute  monopolies,  where  no  in- 
crease is  possible,  as  in  the  case  of  Constantia  wine.  The  third 
case  lies  between  these  two,  being  an  absolute  monopoly,  but 
the  supply  is  increasable.  A  copyright  illustrates  it.  Finally, 
there  is  the  "  great  monopoly  of  land."  Here,  as  already  sug- 
gested, the  power  of  appropriation  is  limited  and  competition 
not  equal. 

Evidently  several  different  points  of  view  are  involved  in  this 
classification.  But  a  general  solvent  may  be  found  in  the  idea 
of  surplus  value.  A  feature  common  to  all  classes  of  monopoly 
is  the  fact  that  income  more  than  covers  costs.  Thus  rent  is  a 
surplus  above  costs ;  hence  Senior  makes  rent  a  monopoly  return. 

Theory  of  Wages.  —  In  his  theory  of  wages  Senior's  treatment 
is  characteristic.  Some  suggestive  analyses  and  distinctions 
are  made,  and  the  problem  is  clearly  stated ;  but,  after  much 
digression,  we  are  taken  little  further  than  the  statement :  the 
proximate  determination  of  wages  depends  on  "  the  extent  of 
the  fund  for  trie  maintenance  of  labourers,  compared  with  the 
number  of  labourers  to  be  maintained."  With  these  words 
Senior  probably  called  into  being  the  wages-fund  doctrine  which 
lies  concealed  in  the  writings  of  Smith  and  Ricardo.2 

Increasing  Returns.  —  Senior  was,  on  the  whole,  an  optimist, 

1  See  Ely,  Senior's  Theory  of  Monopoly,  Amer.  Econ.  Assoc.  Pubs.,  Feb- 
ruary, 1900. 

*  Pol.  Econ.,  pp.  154,  174,  195  f.  For  discussion  see  Cannan,  Produc- 
tion and  Distribution,  p.  267  ff. ;  Taussig,  Wages  and  Capital,  pp.  197-203. 


268  ECONOMIC  THOUGHT 

and  this  shows  itself  in  his  doctrine  concerning  increasing  returns 
from  manufacturing.1  His  third  postulate  was  that  labor  and 
capital  may  be  indefinitely  increased  in  productivity  by  using 
their  products  as  the  means  of  further  production.  He  says, 
"  Every  increase  in  the  number  of  manufacturing  labourers  is 
accompanied,  not  merely  by  a  corresponding,  but  by  an  increased 
productive  power."  There  is  a  "less  proportionate  cost,"  — 
a  "constantly  increasing  facility  "  in  working  up  materials. 

No  explanation  of  this  fact  is  given,  however,  and  Senior 
contents  himself  with  citing  decreased  prices  for  manufactures. 
Though  he  does  not  make  the  point,  yet  his  discussion  of  division 
of  labor  and  capital  in  the  same  section  suggests  some  explana- 
tion. Thus  the  use  of  tools  and  machinery  makes  more  power 
available  and  gives  indefinite  possibilities  of  improvement. 

Two  results  flow  from  increasing  returns  in  manufactures, 
(i)  An  increased  demand  means  lower  prices.  With  a  rise  in 
demand  the  price  of  bread  would  rise;  but  under  similar  cir- 
cumstances the  price  of  lace  would  fall,  improved  processes  being 
made  available.  (2)  A  tax  on  manufactures  by  decreasing  the 
demand  and  the  output  raises  prices  by  an  amount  greater  than 
that  of  the  tax. 

Emphasis  of  the  Subjective.  —  One  of  the  most  striking 
general  impressions  that  the  careful  reader  of  Senior  gets  is  his 
emphasis  of  the  subjective  element.  In  this  he  differs  from 
most  of  his  predecessors.  This  is  seen  in  the  relatively  greater 
importance  he  attaches  to  utility.  It  shows  itself  in  his  inclusion 
of  personal  elements  in  capital.  But  chiefly  it  appears  in  his 
treatment  of  costs.  His  was  a  cost  theory  of  value,  but  his  costs 
were  psychical  and  subjective ; 2  consisting  as  they  did  in  the 
laborer's  sacrifices  and  the  abstinence  of  capitalists. 

Senior  also  further  developed  the  Ricardian  theory  of  foreign 
trade. 

Critical  Estimate.  —  In  criticism  of  Senior's  work  it  may  be 
truly  said  that  it  shows  lack  of  constructive  power,  and  even  of 

1  Ely,  Senior's  Theory  of  Monopoly,  pp.  83,  86,  119,  74. 

2  Though  he  says  (p.  112)  that  we  seldom  go  farther  back  than  the  manu- 
facturer's expenses. 


SENIOR  AND  THE  ABSTINENCE  THEORY  269 

intellectual  endurance.  His  critical  powers  were  remarkable. 
His  logical  and  keenly  analytical  mind  tore  down,  and  then  — 
we  are  disappointed.  He  is  on  the  verge  of  great  truths,  but 
does  not  grasp  them.  Thus  he  formulates  no  law  of  monopoly 
price,  nor  does  he  realize  the  significance  of  a  law  of  increasing 
returns.  He  does  not  grasp  the  concept  of  final  or  marginal 
utility.  He  does  not  give  us  a  valid  theory  of  wages.  Yet 
in  all  these  matters  he  makes  more  or  less  definite  suggestions. 
Among  his  more  positive  errors  the  following  only  will  be 
remarked  upon,  namely,  the  limitation  of  his  first  premise,  which 
serves  to  bring  into  prominence  the  unduly  abstract  character 
of  much  of  the  classical  political  economy;  the  uncoordinated 
character  of  his  classification  of  the  factors  of  production  — 
land,  labor,  abstinence;  his  suggestion  that  the  difference  be- 
tween rent  and  profits  ceases  when  capital  goods  become  the 
property  of  another  than  the  abstainer ; l  and  his  inconsistency 
in  treating  the  relative  amount  of  the  social  product  received 
by  the  factors  of  production,  —  making  the  rate  of  profit  a 
cause  determining  capital's  share,  for  example.2 

1  Ibid.,  p.  129. 

1  Also  the  period  during  which  capital  is  advanced  is  made  another  cause, 
yet  this  period  is  stated  to  depend  in  part  upon  the  rate  of  profit.  Incon- 
sistency is  also  shown  in  statements  as  to  the  relative  importance  of  the  rent 
share. 


b.    THE   EXPOSITORS   OF  THE   ENGLISH  CLAS- 
SICAL   POLITICAL   ECONOMY   OUTSIDE   OF 
ENGLAND:  1776-1850 

CHAPTER   XVI 

SAY,   RAU,   AND    OTHER    CHIEF   EXPOSITORS   IN   GER 
MANY  AND  FRANCE 

GERMANY 

IT  is  the  purpose  of  this  and  the  following  chapter  to  give 
some  account  of  the  more  important  of  those  economists  in  Ger- 
many and  France  who,  on  the  whole,  may  be  classed  as  followers 
of  Adam  Smith.  Without  making  a  sub-classification  it  may 
be  remarked  that  some  of  those  to  be  mentioned  showed  con- 
siderable originality  in  exposition  or  criticism ;  a  few  even  made 
additions  to  the  Smithian  economics:  the  point  is  that  in  the 
more  essential  matters  they  accepted  the  lead  of  the  early  British 
economists,  and  especially  of  Adam  Smith.  Among  the  following 
authors  may  be  found  men  whose  sound  understanding  and  solid 
merit  were  greater  than  those  of  some  to  whom  more  distinct 
attention  has  been  devoted,  the  reason  being  that  the  peculiarity, 
novelty,  or  prominence  gained,  warrants  more  separate  treat- 
ment. 

It  may  well  be  observed  in  advance  that  the  Continental 
economists  have  frequently  gone  directly  back  to  Smith,  while 
rejecting  in  whole  or  in  part  the  development  of  English  thought 
by  Ricardo  and  his  group. 

The  close  of  the  eighteenth  century,  as  already  indicated, 
found  German  economic  thought  in  control  of  the  professors 
of  Kameralistic  sciences.  The  Physiocrats  had  made  some 
few  converts,  and  the  great  upheavals  of  the  time  were  not 
without  influence ;  but  it  remained  for  Adam  Smith's  teaching 

270 


CHIEF  EXPOSITORS  IN  GERMANY  AND  FRANCE       271 

to  give  the  great  impulse  to  a  new  and  truer  conception  of 
economics. 

It  was  not  until  the  year  1794,  when  the  first  good  translation 
of  the  Wealth  of  Nations  by  Ch.  Garve  appeared,  that  Smith's 
work  was  much  known ;  and  even  in  1796  Sartorius  complained, 
in  the  introduction  to  his  Handbuch,  that  Smith  had  exerted 
but  little  influence.  But  shortly  after  1800  all  this  was  changed, 
and  for  a  generation  or  more  English  political  economy  was 
decidedly  dominant. 

The  German  economists  who  wrote  between  1800  and  the  rise 
of  the  Historical  School,  about  the  middle  of  the  century,  fall  into 
three  groups:  the  strict  adherents  of  Smith ;  those  who  followed 
him  to  a  greater  or  less  extent,  but  with  independent  criticism ; 
and  those  who  were  more  fundamentally  opposed.  The  last 
group  will  be  discussed  when  Smith's  opponents  and  critics  are 
taken  up.  *  As  between  the  first  two  groups  it  is  difficult  in  some 
cases  to  place  a  man ;  but,  taking  everything  into  consideration 
it  may  be  said  that  Kraus  (1753-1807),  Sartorius  (1766-1828), 
Liider  (1760-1819),  Huf eland  (?)  (1760-1817),  and  Lotz2  (1770- 
1838)  did  little  more  than  state  Smith's  case ;  while,  on  the  whole, 
Soden  (1754-1831),  Jakob  (1759-1827),  Nebenius  (1784-1857),  H. 
von  Thiinen,  and  Rau  (1792-1870)  are  the  more  important  of  those 
who  followed,  but  criticized  or  supplemented  in  important  ways. 

It  is  beyond  the  scope  of  this  chapter  to  give  an  account  in 
detail  of  these  writers,  and  differences  among  them  make  close 
generalization  difficult.  Thus  Kraus,  Soden,  Hufeland,  and 
Lotz  followed  Smith  in  their  advocacy  of  free  trade,  while  the 
others  recognized  national  lines  to  some  extent.  Or,  on  the  score 
of  rent,  only  Jakob,  Hufeland,  and  Thiinen  showed  much  inde- 
pendence of  the  classical  doctrine. 

Of  the  various  economists  just  mentioned  the  best  known  are 
doubtless  Nebenius,  Thiinen,  and  Rau.  Nebenius  won  fame 
with  his  work  Der  Oejfentliche  Credit  (Public  Credit),  published 
in  1820.  Here  he  discussed  the  nature  and  function  of  capital, 

1  Below,  p.  313  ff.,  408  ff.,  426  ff. 

1  Lotz  shows  some  independence  in  treating  value :  Revision  der  Grund- 
begri/e  der  Nationalwirthschaftslehre,  1813,  III,  pp.  3-7. 


272  ECONOMIC  THOUGHT 

money,  and  credit,  together  with  foreign  exchange  and  public 
debts;  and  his  contributions  appear  noteworthy.  In  general 
economic  theory  his  chief  difference  from  Smith  consisted  in  his 
belief  in  the  expediency  of  more  state  intervention.  He  was 
active  in  promoting  the  German  Zollverein  (customs  union), 
thus  favoring  a  protective  tariff.  Nebenius  held  Smith's  ideas 
on  productive  labor,  and  he  appears  to  have  confused  the  relative 
with  the  absolute  amounts  of  wages,  profits,  and  rent. 

Heinrich  von  Thiinen  is  but  briefly  mentioned  here,  for  his 
thought  forms  the  topic  of  the  next  chapter.  His  book,  Der 
isolirte  Staat  (the  Isolated  State),  the  first  volume  of  which  ap- 
peared in  1826,  enriched  German  economic  literature  with  one  of 
its  most  original  works.  Through  his  brilliant  deductions  in  the 
field  of  distribution  he  consistently  worked  out  a  marginal  pro- 
ductivity analysis  of  wages  and  interest,  in  addition  to  arriving 
at  a  rent  theory  similar  to  Ricardo's,  with  a  more  just  emphasis 
of  the  situation  factor.1  Thiinen's  warm  sympathy  for  labor  led 
him  to  criticize  Smith's  theory  of  wages,  emphasizing  productiv- 
ity and  humanitarian  considerations.  In  these  matters  his  views 
led  him  to  favor  a  considerable  degree  of  state  activity  in  social 
reform. 

Karl  Heinrich  Rau  does  not  merit  attention  so  much  for  origi- 
nal contribution  to  theory  as  for  effective  exposition.  Through 
his  Lehrbuch  der  Politischen  Oekonomie  (1826) 2  he  had  consider- 
able influence  not  only  in  Germany,  where  it  was  the  leading 
work  during  the  second  third  of  the  nineteenth  century,  but 
abroad.  It  is  encyclopedic,  practical,  and  admirably  adapted  for 
the  use  of  government  officials.  In  an  earlier  writing,  A  nsichten 
uber  Volkswirtschaft  (1821),  he  showed  some  appreciation  of  the 
historical  viewpoint ;  but  later  reacted.  His  work  is,  in  the  main, 
little  more  than  a  compendium  of  current  and  preceding  doctrines, 

1  Ricardo's  work  was  not  much  known  in  Germany  till  after  Baumstark's 
translation  in  1837.     Thiinen,  however,  had  read  in  Ricardo  as  early  as  1826. 

2  The  last  edition  prepared  by  Rau  appeared  in   1862-1868.     Vol.  I, 
Grundsatze    der    Volkswirthschaftslehre,    1868;    Vol.    II,    Grundsatze      der 
Volkswirthschaftspolitik  mil  anhaltender  Rucksicht  auf  bestehende  Staatsein- 
richtungen,  1862;  Vol.  Ill,  Grundsatze  der  Finanzwissenschaft,  1864. 


CHIEF  EXPOSITORS   IN  GERMANY  AND   FRANCE       273 

enriched  with  historical,  statistical,  and  technical  information. 
It  is  a  combination  of  Kameralistic  erudition  with  the  political 
economy  of  Adam  Smith.  This  fact  appears  in  the  subdivisions 
adopted :  economic  theory,  economic  policy,  the  science  of  finance. 

But  this  suggests  Rau's  solid  merit.  In  his  time  it  was  a 
service  to  stress  as  he  did  the  distinction  between  theory  or 
science  and  policy  or  art.  Rau  believed  that  the  latter  varies 
with  local  conditions ;  while  the  former  is  more  exact  and  mathe- 
matical. Other  merits  are : x  his  well-balanced  view  of  value  in 
use  and  value  in  exchange ;  his  distinction  between  concrete  and 
abstract  value  in  use ;  his  attack  upon  the  idea  that  the  demand 
for  labor  depends  upon  the  amount  of  capital. 

A  notable  error  which  Rau,  following  Adam  Smith,  maintained, 
was  his  narrow  notion  of  the  productivity  of  labor :  personal 
services  he  defined  as  unproductive. 

Though,  to  the  reproaches  of  Friedrich  List,  Rau  made  the 
claim  that  he  had  used  the  historical  method,  recognizing  stages 
in  economic  development,  he  was  quite  far  from  the  evolutionary 
spirit  of  the  "  historical  school,"  his  idea  of  stages  being  rather 
mechanical.2 

The  service  rendered  by  the  whole  early  group  of  German 
economists  may  be  stated  as  follows :  (i)  The  British  emphasis 
upon  labor  was  corrected  by  an  insistence  upon  the  importance 
of  land  as  a  factor  in  production  ;  (2)  subjective  factors  were  given 
more  attention,  the  productivity  of  "immaterial  labor"  being  in- 
sisted on  by  some,  and  the  significance  of  immaterial  things  like 
culture  and  morals  generally  upheld ;  (3)  Ethics  was  taken  into 
their  viewpoint;  and  (4)  a  greater  place  was  made  for  state 
activity,  the  individualistic  teachings  of  the  classical  economists 
being  limited.  A  step  was  also  taken  toward  a  separate  analysis 
of  entrepreneur's  gains  (Huf eland,  Hermann,  and  Rau). 

One  notes  a  certain  refreshing  realism  which  is  often  found 
in  the  German  writers,  a  fact  that  is  no  doubt  due  to  the 

1  Roscher,  Geschichte  d.  National  Oekonomik,  p.  858. 

2  Similar  objections  might  be  made  to  similar  claims  set  up  by  apologists 
of  the  classical  economists  on  the  score  of  inductive  method,  appreciation  of 
history,  etc. 


274  ECONOMIC  THOUGHT 

close  connection  between  the  German  Universities  and  the 
state.  To  be  sure,  mere  practical  information  may  be 
associated  with  a  lack  of  analysis  or  constructive  power ;  but 
the  leading  German  thinkers  combined  a  wholesome  practi- 
cality with  a  considerable  amount  of  those  qualities. 

FRANCE 

The  rise  of  political  economy  in  England  took  place  at  a 
period  when  the  study  of  that  science  was  declining  in  France. 
The  eminent  services  of  the  Physiocrats  have  been  referred  to. 
But  their  influence  even  in  their  own  land  was  never  great,  and 
they  left  no  permanent  school.  Accordingly  when,  in  1779-1780, 
the  Wealth  of  Nations  was  translated,  it  soon  took  the  lead,  easily 
overcoming  the  opposition  of  some  surviving  Mercantilists. 
The  French  showed  decidedly  less  independence  and  originality 
than  the  Germans,  a  fact  partly  attributable,  perhaps,  to  their 
slight  interest  in  economics.  But  in  the  field  of  Socialistic  propa- 
ganda they  displayed  considerable  activity  and  originality. 

The  chief  writer  to  be  mentioned  is  Jean  Baptiste  Say  (1767- 
1832)  whose  Traite  d' Economic  Politique,  published  in  1803,  did 
more  to  spread  Smith's  teaching  than  any  other  work.  Say  was 
a  business  man  and  politician  who  was  led  to  study  political  econ- 
omy by  a  perusal  of  the  Wealth  of  Nations,  thereafter  devoting 
much  of  his  life  to  service  as  a  teacher  and  author  in  this  field. 

The  first  of  Say's  contributions  to  be  mentioned,  and  the  most 
important,  lies  in  the  field  of  definition  and  arrangement.  Per- 
haps through  suggestion  from  Turgot's  Reflexions  he  divided  the 
second  edition  of  his  treatise  into  books  on  Production,  Distribu- 
•  tion,  and  Consumption,  thus  originating  an  arrangement  com- 
mon in  later  textbooks.  Exchange  is  not  illogically  treated 
under  Production.  Then  he  added  to  the  idea  that  the  national 
income  falls  into  three  shares  —  rent,  wages,  profits  —  so  as  to 
distinguish  three  corresponding  factors  of  production  in  natural 
agents,  labor,  and  capital.  And,  furthermore,  he  somewhat 
developed  the  analysis  of  the  part  played  by  capital.  And  here 
it  is  noteworthy  that  he  criticized  English  economics  for  com- 


CHIEF   EXPOSITORS   IN  GERMANY  AND   FRANCE       275 

bining  the  gains  of  the  undertaker  and  of  the  capitalist.1  He 
himself  distinguished  their  functions,  styling  the  former  "  entre- 
preneur," thus  bringing  into  use  a  term  which  has  found  per- 
manent place  in  the  science. 

In  a  broader  way  he  made  some  good  suggestions  favoring  the 
use  of  the  inductive  method,  and  he  argued  that  similar  methods 
to  those  used  in  the  natural  sciences  might  be  followed  in  political 
economy.2 

The  point  in  which  Say  is  best  known  is  his  theory  of  markets 
(Debouches)*  He  argues  that  the  belief  —  held,  for  example,  by 
Malthus  and  Sismondi  —  that  there  may  be  a  general  overpro- 
duction and  glut  is  an  unsound  generalization  from  particular  ex- 
perience. Generalized,  there  can  be  no  such  thing,  for  selling  is 
at  the  same  time  buying,  and  in  producing  men  are  creating  a  de- 
mand for  other  goods.  And  Say  points  out  the  bearing  of  this 
reasoning  upon  foreign  trade :  imports  are  no  disadvantage,  "for 
nothing  can  be  bought  from  strangers,  except  with  native  prod- 
ucts." As  a  matter  of  fact,  there  seems  to  be  less  merit  in  this 
idea,  concerning  which  Say  had  exaggerated  pretensions,  than  in 
some  others ;  for  it  is  but  a  little  development  over  the  Physio- 
cratic  teaching  that,  in  buying  and  selling,  goods  exchange  for 
goods. 

No  account  of  Say's  work  would  be  complete  without  some 
mention  of  his  position  on  value.  In  Book  II,  Chapter  I,  he 
shows  his  clear  appreciation  of  the  importance  of  the  subject 
to  an  understanding  of  Distribution.  More  than  that,  he  puts 
the  parts  played  by  demand  and  supply  in  an  advanced  way, 
and  gives  more  significance  to  utility  than  his  English  contem- 
poraries. Utility  is  the  inherent  capability  of  things  to  satisfy 
human  wants,  and  value  originates  in  utility.4  Price  is  the 
measure  of  value ;  value  is  the  measure  of  utility,  so  long  as 
the  buyer  pays  no  more  than  his  estimation  of  the  utility  of 
his  purchase.  This  makes  room  for  costs,  and  Say  slips  over 
to  the  idea  of  normal  value  based  on  costs.  He  criticizes 
Smith's  labor-cost  theory,  however,  holding  that  "  industrial  " 

1  Bk.  II,  Chap.  VIII,  §  2.  »  Bk.  I,  Chap.  XV. 

1  See  introduction  to  Traitt.  4  Bk.  I,  Chap.  I. 


276  ECONOMIC  THOUGHT 

costs,  including  rent  and  profits,  determine  value.  He  also 
held  that  Smith  had  erred  in  narrowing  economics  by  limiting 
wealth  to  material  things :  "  He  should,  also,  have  included 
under  it  values  which,  although  immaterial,  are  not  less  real, 
such  as  natural  or  acquired  talents."1 

Another  point  in  which  Say  differed  from  his  master  was  the 
greater  extent  to  which  he  carried  the  laisser-faire  doctrine. 
He  would  have  allowed  small  place  for  state  activity.  The 
Frenchman  was  inclined  to  develop  optimistic  tendencies,  and 
this  is  evidenced  by  his  identification  of  public  and  private  in- 
terests. 

I  In  addition  to  enlarging  upon  consumption  in  general,  Say 
deserves  mention  for  his  distinction  between  saving  and  unpro- 
ductive consumption  and  the  discussion  of  their  results. 

Among  the  just  criticisms  passed  on  Say  are  his  lack  of  a  broad 
historical  training,  his  narrow  —  and  jealous  —  criticisms  of 
Ricardo,  his  excessive  views  on  laisser-faire  and  taxation,  his 
belief  that  wealth  consists  in  a  sum  of  exchange  values,  and  his 
insistence  that  from  the  social  point  of  view  gross  and  net  revenue 
are  the  same.  Shutting  his  eyes  to  costs,  he  held  that  "  the  term 
net  produce  applies  only  to  the  individual  revenue  of  each  sepa- 
rate producer  .  .  .  ;  but  that  the  aggregate  of  individual  revenue, 
the  total  revenue  of  the  community,  is  equal  to  the  gross  produce 
of  its  land,  capital,  and  industry."  2 

The  tendency  has  been  to  underestimate  Say's  services,  per- 
haps because  of  his  own  exaggerated  pretensions.  He  was  no 
Smith  nor  Ricardo ;  but  he  was  no  mere  popularizes  His  ability 
was  not  that  of  the  masters  and  may  be  called  second  rate,  but 
that  such  as  it  was  it  was  not  small  appears  from  the  brief  state- 
ment of  his  chief  merits.  The  history  of  political  economy 
would  have  been  different  without  J.  B.  Say. 

An  excellent  expositor  of  the  Smith-Say  doctrines  was  Joseph 
Gamier,  whose  chief  work  was  done  between  1848  and  1860. 3 

1  Introduction  to  Traite;  also  Bk.  II,  Chap.  V,  last  paragraph. 
1  Bk.  II,  Chap.  V. 

1  Elements  de  V Economic  Politique  (1848) ;  Traite  de  V Economic  Politique 
(1860). 


CHIEF  EXPOSITORS  IN  GERMANY  AND  FRANCE       277 

The  only  other  French  writers  whom  it  falls  within  the  province 
of  this  chapter  to  mention  are  Cournot  (1801-1877)  and  Dunoyer 
(1786-1862).  Augustin  Cournot  has  to  his  credit  the  first  ex- 
tensive and  important  use  of  mathematics  in  economics ; 1  a 
method  which,  though  it  has  resulted  in  no  important  discov- 
eries, undoubtedly  has  its  uses,  especially  in  the  concise  and  accu- 
rate presentation  of  deductions  and  the  representation  of  slight 
variations.  Thus  Cournot  was  the  pioneer  in  showing  the  rela- 
tion between  small  increments  in  commodities  and  those  in  price. 
Cournot  also  attacked  some  of  the  optimistic  notions  of  the 
French  economists. 

Even  more  clearly  than  Say,  Charles  Dunoyer  was  one  of  the 
followers  of  Smith  who  developed  his  optimistic  tendencies.2 
By  the  close  of  the  first  quarter  of  the  century  a  group  of  French- 
men began  to  write,  who,  while  adhering  to  the  most  fundamental 
doctrine  of  Smith  and  Say,  were  more  influenced  by  the  social 
question  which  confronted  them.  This  question  was  approached 
with  some  recognition  of  its  ethics,  but  the  tendency  was  to  warn 
against  government  intervention  and  advise  free  play  for  eco- 
nomic forces.  Dunoyer  may  be  taken  as  the  chief  representative. 

Though  not  so  clear-cut  as  Say,  Dunoyer  shows  more  inde- 
pendence. He  lays  greater  stress  than  Say  upon  immaterial  wealth, 
dividing  production  according  as  men  or  goods  are  the  immediate 
object.  In  the  former  case,  the  physician,  the  artist,  the  teacher, 
and  the  clergyman  work  on  man's  body,  imagination,  intellect, 
and  morals,  respectively.  Industries  producing  commodities  are 
divided  into  the  extractive  industries,  trade  and  transportation, 
manufactures,  and  agriculture.  Mere  exchange,  not  resulting 
in  material  things,  is  not  included  as  an  "  industry,"  though 
its  necessity  is  recognized. 

1  Recherches  sur  les  Prindpes  M  athematiques  de  la  Thtorie  des  Richesses, 
1838. 

1  De  Tracy  (1823),  Chevalier  (1845-1850),  and  Gamier  (1860)  are  others. 
See  Kautz,  National -Oekonomik,  II,  571  ff.  Dunoyer's  chief  works  are: 
De  la  liberte'  du  travail  (1845)  '•>  Notices  d'economie  sociale  (1870,  posthu- 
mous) ;  Nouveau  trait 6  d' economic  sociale  (1830).  On  Dunoyer  see  Villey, 
L'ouvre  economique  de  Dunoyer,  Paris,  1899. 


278  ECONOMIC  THOUGHT, 

Labor,  Dunoyer  thinks,  is  the  only  productive  factor.  Value 
measures  services,  things  exchanging  according  to  the  quantity 
of  services  stored  in  them.  This  is  coupled  with  the  belief  that 
nature's  services  are  gratuitous  and  not  to  be  reckoned  as  costs. 
Payment  for  land  is  merely  interest  on  capital.  Bastiat,  who, 
as  has  been  seen,  had  similar  ideas,  was  avowedly  influenced  by 
these  views. 

Dunoyer  dwells  on  the  part  which  the  heedlessness  and 
viciousness  of-  the  lower  classes  play  in  causing  their  ills ;  and, 
while  laying  part  of  the  blame  on  society,  argues  for  laisser- 
faire.  He  believes  inequalities  are  necessary  and  advantageous 
to  society,  but  thinks  they  may  be  ameliorated ;  the  initiative, 
however,  should  come  from  the  sufferers  themselves,  as  they 
know  their  own  needs  best. 

The  most  notable  tendencies,  then,  of  the  relatively  few  im- 
portant expositors  of  the  British  political  economy  in  France, 
were  to  take  extreme  views  on  laisser-Jaire  coupled  with  a  tend- 
ency toward  economic  optimism,  Cournot  being  an  uninfluen- 
tial  exception. 


CHAPTER  XVH 

THtJNEN    AND    THE  ISOLATED  STATED 

JOHANN  HEINRICH  VON  THUNEN  (1783-1850)  was  undoubtedly 
one  of  Germany's  most  brilliant  theorists.  Indeed,  he  may  be  com- 
pared to  Ricardo  in  England,  though  his  work  was  more  technical 
and  did  not  cover  so  important  a  part  of  the  field  of  pure  economic 
theory  as  money.  The  first  volume  of  his  one  work  was  pub- 
lished in  1826  at  Hamburg,  and  had  as  its  full  title :  Der  isolirte 
Staat  in  Beziehung  auf  Landwirthschaft  und  Nationals konomie, 
oder  Untersuchungen  iiber  den  Einfluss,  den  die  Getreidepreise,  der 
Reichtum  des  Bodens  und  die  Abgaben  auj  den  Ackerbau  ausiiben 2 
(The  Isolated  State  in  Relation  to  Agricultural  and  Political 
Economy,  or  Investigations  concerning  the  Influence  which 
Grain  Prices,  the  Richness  of  the  Soil,  and  Taxes,  exert  upon 
Tillage).  The  first  part  (Abtheilung]  of  the  second  volume  (Theil) 
appeared  in  1850 ;  and  not  until  1863  was  the  work  completed  by 
the  addition  of  a  second  part  and  the  third  volume.  The  whole 
work  was  printed  as  a  third  edition  in  1875.  It  has  been 
translated  into  French,  and  was  finally  honored  by  a  place  in  a 
collection  of  the  chief  German  economists. 

In  his  general  economic  views  Thiinen  may  be  classed  as  a 
follower  of  Adam  Smith,  of  whose  work  he  was  a  student.  In 

1  As  secondary  references  on  Thiinen  see  Schumacher,  Johann  Heinrich 
von  Thiinen,  ein  Forscherleben,  Rostock,  1868. 

Biichler  (M.),  Johann  Heinrich  von  Thiinen  und  seine  Nationalb'konom- 
ischen  Hauptlehren,  Bern,  1907. 

Helferich,  "H.  von  Thiinen,"  Tiibinger  Zeitschrift  f.  Staatsurissen- 
schaft,  1852. 

Roscher's  and  Rambaud's  histories  of  political  economy. 
1  2d  ed.  in  2  vols.,  1842.     The  earlier  page  references  refer  to  the  first 
edition;  later  ones  are  to  the  third  edition,  which  contained  his  complete 
work. 

279 


280  ECONOMIC  THOUGHT 

his  youth  he  acquired  a  knowledge  of  practical  agriculture 
and  afterwards  studied  what  might  be  called  agricultural  eco- 
nomics under  Thaer.  Later  his  now  celebrated  estate  (Gut) 
of  Tellow  was  purchased,  and  here  he  made  careful  investiga- 
tions of  the  same  subject.  Thus  apparently  if  ever  a  man  was 
thoroughly  equipped  for  a  practical  work  on  the  economics  of 
agriculture,  it  was  Thiinen. 

Method  and  Plan  of  Work.  —  In  dealing  with  Thiinen  the 
first  thing  that  strikes  one  is  his  method.  It  appears  hi  the 
very  name  of  his  book,  the  Isolated  State.  Contrary  to  the 
usual  procedure,  then,  the  examination  of  this  writer's  thought 
will  be  begun  with  some  discussion  of  his  method  of  thinking. 
His  method  was  a  contribution.  Indeed,  the  book  is  one  of 
the  best  illustrations  of  the  abstract-deductive  or  "  exact " 
method  to  be  found  down  to  this  very  day.  The  first  section 
of  the  first  volume  is  headed  "  Postulates,"  the  second,  "  The 
Problem  " ;  then  come  various  changes  in  the  postulates,  and 
finally  a  comparison  of  the  isolated  state  with  the  actuality. 
Not  only  is  the  method  abstract  and  deductive;  it  is  charac- 
terized by  a  use  of  mathematical  formulae,  these  involving, 
however,  only  arithmetic  or  simple  algebra.  No  use  is  made 
of  geometrical  figures.  It  must  be  noted,  however,  that  the 
later  parts,  which  deal  with  labor,  are  not  so  purely  abstract 
and  deductive,  and  in  dealing  with  the  effects  of  climate,  and 
the  like,  some  modification  of  the  method  may  be  observed. 

It  is  Thiinen's  plan  first  to  reduce  the  problem  stated  in  his 
title  to  its  simplest  elements.  Accordingly  he  says:  Let  us 
imagine  a  very  great  city  set  in  the  midst  of  a  fruitful  plain, 
through  which  no  navigable  river  or  canal  doth  flow.  The 
plain  itself  consists  of  like  land,  which  is  everywhere  equally 
adaptable  to  cultivation.  Far  removed  from  the  city,  the 
plain  ends  in  an  uncultivated  waste  which  separates  this  state 
from  the  world  without.  There  is  no  other  city  than  the  great 
one  set  in  the  center  of  the  plain,  and  it  furnishes  all  artificers' 
products,  while  the  means  of  life  are  drawn  entirely  from  the 
surrounding  plain.  Metals  and  salt  are  produced  near  the  city, 
(p.  i)  "Now  the  question  arises:  how  will  agriculture  shape 


THUNEN  AND   THE  ISOLATED  STATE  281 

itself  under  these  conditions,  and  how  will  the  greater  or  lesser 
distance  from  the  city  affect  tillage  if  it  is  carried  on  with  the 
greatest  skill  and  care  ( Konseqitenz)  ?  " 

Under  these  assumptions  the  conclusion  is  drawn  at  once: 
"  In  general  it  is  clear  that  in  the  vicinity  of  the  city  such 
products  must  be  raised  as  have  a  great  weight  in  proportion  to 
their  value  (Werth)  or  are  very  bulky,  and  whose  cost  of  trans- 
portation to  the  city  would  be  so  significant  as  to  prevent  their 
production  in  farther  regions ;  so  also  with  perishable  products 
which  must  be  fresh  for  use."  (2)  Products  of  higher  specific 
value  would  be  drawn  from  greater  distances.  "  On  this 
ground  alone  pretty  sharply  drawn  concentric  circles  will  be 
found  about  the  city  within  which  this  or  that  crop  will  form 
the  chief  product."  In  the  first  circle,  for  example,  garden 
truck  and  milk  would  be  chief  products. 

In  this  circle  the  land  is  the  chief  object  of  economy,  while 
labor  is  relatively  less  important :  "  The  price  of  milk  must 
rise  so  high  that  the  land  for  milk  production  can  be  of  so 
much  use  through  the  production  of  no  other  thing.  As  the 
land  rent  (Ackerpacht)  in  this  circle  is  very  high,  so  increased 
labor  is  here  little  regarded.  To  gain  the  greatest  amount  of 
fodder  from  the  smallest  area  is  the  problem."  (3) 

The  estate  of  Tellow  is  made  the  basis  for  the  greater  part 
of  his  calculations,  its  prices  and  expenses  being  taken  for 
granted  by  Thiinen.1  A  large  part  of  the  book  is  a  study  of 
how  the  economy  of  this  estate  would  vary  with  distance  from 
the  imaginary  city  and  with  changes  in  prices  and  taxes.  It 
is  assumed  that  the  gross  product  may  be  estimated  in  grain 
and  that  the  price  of  live  stock  will  vary  with  the  price  of  the 
grain,  —  which  is  really  true,  says  Thiinen,  of  a  state  not 
surrounded  by  others  which  are  uncultivated  and  merely  en- 
gaged in  grazing  (205).  Further,  it  is  assumed  that  the  farm 
expenditures  are  made  up  of  fixed  percentages  of  money  and 
of  grain,  this  being  done  to  simplify  the  determination  of  the 
effects  caused  by  a  change  in  grain  prices. 

1  Results  obtained  from  records  kept  on  his  estate  during  the  five  years, 
1810-1815. 


282  ECONOMIC  THOUGHT 

All  the  various  assumptions  are  adopted  consciously,  and 
the  attempt  is  made  to  indicate  what  would  be  the  result  were 
they  removed  (209  f.).  As  to  equality  of  soil,  he  points  out 
that  one  could  also  have  assumed  a  fixed  price  for  grain  and 
various  degrees  of  fertility  in  a  second  isolated  state ;  but  this 
is  unnecessary,  for  formulae  already  developed  enable  the  solu- 
tion of  such  problems  as,  for  instance,  what  rent  will  a  farm  of 
any  given  productiveness  yield  when  grain  is  worth  a  given 
price  per  bushel.  As  to  water  transportation,  it  merely  operates 
to  make  points  accessible  to  it  virtually  so  much  nearer  the 
city  by  reducing  freights.  And,  with  numerous  little  towns, 
each  must  be  thought  of  as  possessing  its  contributory  terri- 
tory, thus  making  it  necessary  for  the  central  city  to  draw  its 
supplies  from  greater  distances  and  so  increasing  transportation 
costs.  The  price  of  grain  in  the  small  towns  would  depend 
upon  the  market  price  in  the  capital  city  (214). 

While  he  did  not  fully  realize  the  limitations  of  his  method, 
Thiinen  was  partly  aware  of  them.  He  wrote :  "  Just  as  a 
geometer  reckons  with  points  lacking  extension  and  planes 
without  thickness,  though  neither  actually  exists;  so  we  may 
take  all  adventitious  circumstances  and  contingencies  away 
from  an  active  force,  and  only  so  can  we  recognize  what  share 
it  has  in  the  phenomena  which  He  before  us  "  (215).  He  be- 
lieved that  it  would  be  possible  to  draw  up  a  chart  for  an  entire 
land  indicating  the  circles  of  different  products ;  but  while  the 
same  principle  which  controls  the  industry  of  an  isolated  state 
would  be  at  work,  the  actual  phenomena,  he  saw,  would  be 
quite  different  on  account  of  the  "  endless  number  of  other 
relations  and  circumstances  "  (215).  In  fact,  Thiinen  never 
overcame  all  the  difficulties  which  beset  the  attempt  to  introduce 
the  complexities  of  life  into  his  abstract  state. 

Rent.  —  Tinmen's  work  in  the  field  of  distribution  is  most 
interesting,  and  he  naturally  gives  much  attention  to  rent.  In 
a  section  falling  under  the  discussion  of  the  three-field  system 
and  immediately  following  one  on  the  determination  of  the 
price  of  grain,  Thiinen  treats  of  the  origin  of  land  rent  (181). 
The  distant  producer  of  rye,  under  the  assumed  conditions, 


THUNEN  AND   THE  ISOLATED  STATE  283 

must  get  i£  thalers  per  bushel,  for  it  costs  him  that  much. 
On  the  other  hand,  the  producer  near  the  city  could  market 
his  product  for  much  less  —  perhaps  \  thaler;  but  the  latter 
cannot  be  compelled  to  take  a  lower  price  than  the  former, 
nor  can  it  be  expected  of  him.  For  the  buyer,  one  bushel  has  as 
much  value  (Wertti)  as  another.  What  the  near-by  producer 
receives  above  cost  is  his  gain.  And  "  as  this  gain  is  permanent 
and  returns  yearly,  so  his  land  [Grund  und  Boden]  yields  an 
annual  rent.  The  land  rent  of  a  farm  arises,  therefore,  from 
the  advantage  which  it  has  in  its  situation  and  in  its  soil  over 
the  worst  farm  which  must  produce  in  order  to  satisfy  the 
demand  "  (182).  The  value  of  this  advantage  expressed  in 
money  or  grain  indicates  the  amount  of  the  land  rent.  Rent 
is  "  the  amount  of  the  landlord's  income  which,  after  deducting 
interest  on  the  value  of  the  buildings,  woods,  and  all  valuable 
objects  which  can  be  separated  from  the  land,  remains  and  so 
belongs  to  the  land  as  such  "  (14). 

In  a  note,  Thiinen  intimates  that  other  investigations,  which 

he  does  not  report,  show  that  there  are  other  grounds  for  rent, 

—  that  even  lands  of  equal  fertility  and  situation  with  regard 

to  market  can,  when  completely  distributed,  yield  a  rent  (182). 

It  must  be  admitted  that,  while  the  significance  of  rent  as  a 
share  in  distribution  is  by  no  means  so  clearly  indicated  as  is 
the  case  with  Ricardo,  this  explanation  of  rent  as  such  is  clearer 
and  more  comprehensive  than  the  latter's.  If  anything,  Thiinen 
goes  to  the  other  extreme  than  that  found  in  Ricardo's  theory, 
emphasizing  situation  rather  than  fertility;  and  his  statement 
is  thus  a  valuable  corrective  of  the  Ricardian  formulation. 

In  a  concluding  section  on  Taxes  upon  Land-Rent  (276) 
there  is  an  excellent  statement  of  the  effects  of  taxation,  im- 
provements, etc.,  upon  rent.  The  fact  that  rent  is  no  fixed 
amount,  but  varies  with  prices  and  interest  rate,  is  emphasized. 

It  is  interesting  to  observe  that  Thiinen  is  not  one  of  those 
who  would  minimize  or  overlook  the  difference  between  agri- 
culture and  manufactures,  and  so  between  rent  and  interest. 
"  Agriculture,"  he  writes,  "  differs  essentially  from  industry 
(Gewerke)  in  that,  when  pursued  on  different  kinds  of  soil, 


284  ECONOMIC  THOUGHT 

the  same  human  activity  is  rewarded  by  very  different  pro- 
duction, whereas  in  industry  the  same  activity  and  skill  ever 
afford  a  similar  labor  product  "  (271). 

Price  and  Value.  —  Starting  with  the  assumption  that  it 
costs  the  equivalent  of  i£  thalers  to  produce  and  transport  a 
bushel  of  rye  from  the  most  distant  circle,  Thiinen  supposes  a 
fall  in  price  to  i  thaler  (177).  Then  the  ij  thaler  land  would 
cease  to  send  grain  to  the  city,  including  all  land  over  23  £ 
miles  away.  Assuming  the  same  population  and  demand, 
there  would  be  a  great  lack  of  grain,  and  the  price  would  at 
once  rise:  the  price  of  i  thaler  is  impossible.  The  following 
"  law  "  is  then  deduced :  "  The  price  of  grain  must  be  so  high 
that  rent  will  not  fall  below  zero  upon  the  land  on  which  the  pro- 
duction of  grain  for  the  market  is  most  costly,  yet  whose  culti- 
vation is  necessary  for  the  satisfaction  of  the  demand  "  (179). 

Another  interesting  point  concerns  the  determination  of  the 
price  of  the  products  of  labor  on  the  farm  (207).  This  must 
cover  the  outlays  for  food,  etc.,  during  the  process,  and  for 
raw  materials.  If  these  materials  must  be  procured  from  the 
city,  the  price  of  the  product  is  only  to  a  small  extent  deter- 
mined by  the  local  price  of  grain ;  but  if  the  raw  material  — 
say  flax  —  is  produced  on  the  farm,  the  price  of  the  produced 
linen  is  largely  determined  by  grain  prices,  since  only  a  few 
articles  for  his  home  must  be  brought  from  the  city  and  paid 
for  by  the  farmer  in  money. 

The  place  of  demand  is  sufficiently  emphasized,  though  not 
one-sidedly.  If  the  consumption  and  demand  increase,  the 
price  rises,  and  further  cultivation  "  intensive  and  extensive  " 
(180)  is  the  result.  "  As  soon  as  this  happens,  production  and 
consumption  are  again  brought  into  equilibrium."  Consider- 
ing long-time  periods,  consumption  is  related  to  income :  With 
equal  production  the  rise  or  fall  of  grain  prices  will  depend 
upon  the  increase  or  decrease  of  the  income  which  the  consum- 
ing class  of  citizens  enjoy. 

Finally  the  distinction  between  market  price  and  average 
(mittel)  price  is  made.  Market  price  rarely,  if  ever,  coincides 
with  the  average  pricev  but  constantly  fluctuates  about  it.  It 


THUNEN  AND   THE  ISOLATED  STATE  285 

is  observed  that  the  Mittelpreis  alone  has  been  the  object  of 
the  investigation,  the  long-time  viewpoint  being  taken.  Smith's 
distinction  between  value  in  use  and  value  in  exchange  is  also 
followed  (24,  128,  129). 

Wages  and  Interest :  Surplus.  —  Thiinen  was  seriously  con- 
cerned over  what  we  call  "  the  labor  problem,"  and  to  its  solu- 
tion he  devoted  a  large  part  of  his  thought.1  Putting  the  ques- 
tion, Are  low  wages  "  natural  "  or  are  they  due  to  usurpation 
by  capitalists  ?  he  answers,  The  latter.  What,  then,  is  the 
natural  wage?  That  is,  what  ought  wages  to  be?  Here,  he 
says,  the  economists  do  not  help  us  to  an  answer.  They  merely 
state  a  truism :  wages  are  determined  by  demand  and  supply, 
and  are  what  they  are.  This  does  not  satisfy  one  who,  like 
Thiinen,  sees  hi  wages  the  means  of  livelihood  for  men  and 
women  rather  than  a  mere  price  set  by  competition  upon  the 
commodity,  labor.2  He  says  that  Smith  had  done  well  for  his 
time,  but  that,  in  view  of  the  discontent  and  danger  of  class 
conflict  which  had  since  arisen,  economists  must  go  further. 

Thiinen,  accordingly,  seeks  to  get  at  the  bottom  of  the  prob- 
lem by  first  simplifying  it.  He  goes  to  the  margin  of  cultiva- 
tion, thus  eliminating  rent.  He  assumes  a  tabula  rasa.  He 
then  reduces  capital  productivity  to  labor  productivity.  In  so 
doing,  he  implies  that  capital  is  stored-up  labor :  his  procedure 
being  to  divide  laborers  into  two  classes,  the  capital-producing 
and  the  mere  subsistence-producing;  and  to  determine  wages 
(and  interest)  for  the  first  class,  on  the  assumption  that  com- 
petition will  give  the  same  wage  to  the  latter  class. 

It  is  to  be  noted  in  advance  that  Thiinen  had  the  idea  that 
successive  units  of  labor  and  capital  yield  less  than  propor- 
tionate returns,  and  that  consequently  there  are  surpluses  above 
the  returns  on  the  last  units,  in  which  surpluses  labor  should 
share.  The  evil  of  low  wages  lies  in  the  fact  that  capital  re- 
tains more  than  its  share.  It  is  necessary,  then,  to  ask :  what 

1  See  II  Theil,  i  Abtheilung,  i  Abschnitt. 

2  Thiinen  states  that  these  ideas  came  to  him  in  1826  after  reading  in  Say 
and  Ricardo,  and  were  written  then,  but  not  published,  because  they  seemed 
too  radical  at  that  time. 


286  ECONOMIC  THOUGHT 

is  the  natural  interest  rate,  and  can  the  existing  rate  be  en- 
croached upon? 

Now  with  this  idea  in  mind,  and  reasoning  under  the  above 
assumptions,  Thiinen  seeks  in  four  ways  to  analyze  the  relation 
between  wages  and  interest  and  derive  a  law  for  determining  the 
natural  or  proper  wage  (and  interest) :  by  regarding  (i)  capital  as 
produced  by  labor,  or  by  considering  labor  as  producing  capital ; 
(2)  labor  as  replaced  by  capital  (i.e.  substitution) ;  (3)  marginal 
productivity  of  capital ;  (4)  marginal  productivity  of  labor. 

From  the  first  point  of  view  he  makes  the  interest  on  a  given 
capital  depend  upon  the  amount  of  labor  —  or  rather  the  amount 
of  subsistence  for  labor  —  required  for  the  production  of  that 
capital.  The  formula  is:  interest  is  to  capital  as  the  (addi- 
tional) income  secured  by  the  laborer  as  a  result  of  his  produc- 
ing the  capital  is  to  the  wages  of  the  laborer.  According  to 
this  idea,  "  natural  "  wages  (and  interest)  would  vary  with 
productivity.  These  conclusions  must  also  apply  to  non- 
capital-producing laborers ;  otherwise  they  would  take  to  pro- 
ducing capital.  As  Thiinen  puts  it,  the  excess  of  wages  over 
subsistence  must,  at  interest,  equal  the  income  secured  by 
capital-producing  laborersX  In  a  word,  under  Thiinen's  as- 
sumptions, the  additional  income  received  by  capital-producing 
laborers  from  the  productivity  of  their  capital  would  be  a 
determining  factor  in  all  wages. 

As  to  the  third_and  fourth,  viewpoints,  Thiinen's  reasoning  is 
based  upon  two  advanced  concepts :  (i)  a  universalized  law  of 
diminishing  returns;  (2)  a  marginal  productivity  analysis  of 
distribution.  Briefly  put,  his  idea  on  the  third  point  is  that  as 
successive  units  of  capital  are  added  to  a  given  industry  or 
undertaking,  the  return  diminishes  in  quantity  and  net  value ; 
additional  capital  increases  the  productivity  of  a  nation's  labor 
at  a  lower  rate  than  earlier  portions.  More  definitely,  succes- 
sive units  of  capital  added  to  a  given  amount  of  labor  on  mar- 
ginal land  result  in  a  decreasing  product  per  unit  (101),  and 
the  return  upon  the  whole  supply  of  capital,  when  lent,  is  deter- 
mined by  the  use  of  the  last  bit  of  capital  applied.2  Thus,  as 
1  Der  isolirte  Stoat,  3d  ed.,  pp.  150  f.  2  Ibid.,  pp.  99,  103. 


THUNEN  AND   THE  ISOLATED  STATE  287 

already  suggested,  a  surplus  value  arises  in  the  use  of  the  earlier 
units.  This  surplus  above  the  marginal  unit  "  naturally " 
belongs  to  labor. 

From  the  fourth  point  of  view  he  considers  wages  as  deter- 
mined by  the  marginal  productivity  of  labor.  He  illustrates 
by  imagining  additional  labor  put  upon  a  given  potato  field, 
and  presents  a  table  indicating  decreased  returns.  His  con- 
clusion is  that  the  last  laborer  employed  receives  what  he  adds 
and  that  his  wage  determines  the  rate  for  all  laborers  of  equal 
skill  and  capacity.1  From  this  point  of  view  there  is  also  a 
surplus :  "  Even  if  the  last-added  laborers  do  not  produce 
more  than  enough  to  cover  their  wages,  yet  the  preceding 
laborers  afford  a  very  considerable  surplus  to  the  undertakers, 
which  gives  them  the  means  of  paying  a  higher  wage."  2 

On  all  four  bases  Thiinen  professes  to  reach  the  same  conclu- 
sion, namely,  that  the  natural  wage  is  indicated  by  the  formula 
VAP,  in  which  A  equals  the  value  of  the  product  of  labor  and 
capital,  and  P  equals  the  subsistence  of  the  laborer  and  family. 

The  general  idea  is  clear.  A  surplus  arises  on  the  earlier 
units  of  an  investment  of  successive  increments  of  labor  and 
capital.  Subsistence  must  be  considered  as  a  minimum;  but 
labor  ought  to  have  more  than  a  bare  subsistence,  and  ought  to 
share  in  progress.  How,  then,  shall  this  surplus  be  shared? 
Give  labor  a  share  which  will  vary  as  the  square  root  of  the 
joint  product  of  the  two  factors.  This  would  remove  the  fatal 
clash  of  interests  between  labor  and  capital,  and  as  long  as  a 
laborer  got  such  a  wage  he  would  never  be  in  need,  —  a  fact 
of  "  decisive  importance  "  (208).  Needless  to  say,  the  above 
idea  of  margin  and  surplus  anticipates  ideas  commonly  asso- 
ciated with  more  recent  developments  in  theory.3 

In  brief  criticism  it  must  be  remarked,  however,  that  the 
foregoing  idea  of  a  surplus  well  illustrates  a  vicious  tendency 
of  the  so-called  "  dosing  method  "  of  reasoning  in  economics. 
In  reality  no  such  distinction  between  the  value  product  of 

1  See  ibid.,  pp.  100,  178,  186.  *  Ibid.,  p.  187. 

3  Professor  Clark  himself  says:  "With  Von  Thiinen's  work  before  us,  no 
one  else  can  claim  as  his  own  the  application  to  labor  and  to  capital  of  the 


288  ECONOMIC  THOUGHT 

one  group  of  laborers  and  that  of  another,  increased  by  the 
addition  of  more  laborers,  exists.  There  is  no  such  separation 
between  the  two  cases  as  Thiinen's  theory  implies.  One  can- 
not logically  assume  that  in  the  first  case  a  group  of  men  got 
certain  wages,  and  then,  when  additional  ones  were  employed 
and  brought  wages  down,  that  the  difference  between  the  two 
wage  rates  would  be  left  as  a  surplus  in  the  hands  of  the  em- 
ployer. Rather  the  difference  ceases  to  exist  as  soon  as  the 
new  arrangement  is  effected,  and  the  "  surplus  "  is  merely  an 
historical  thing.  The  laborers  do  not  produce  as  much  on  the 
average  as  they  did.  Simply  conditions  as  to  the  relative  pro- 
portions of  land,  labor,  and  capital  have  been  altered,  and, 
other  things  being  equal,  the  average  laborer  is  less  productive. 

To  his  wages  formula  Thiinen  attached  an  exaggerated  sig- 
nificance, even  expressing  a  wish  that  it  should  be  engraved 
upon  his  tombstone,  though  his  correspondence  shows  that  in 
later  years  he  felt  the  impossibility  of  applying  it,1  and  in  prac- 
tice he  was  fain  to  use  a  sort  of  profit-sharing  scheme.  In  fact, 
it  has  no  exact  validity.  So  varied  is  the  part  played  by  labor, 
relatively  to  capital,  in  different  industries  or  in  different  stages 
of  the  same  industry,  that  no  such  formula  can  express  the 
share  of  the  total  value  product  attributable  to  it  in  general. 
Here,  at  least,  this  shrewd  economist  fell  victim  to  his  abstract 
method.  His  formula  would  do  under  certain  limitations,  as 
under  an  assumption  of  the  dominance  of  economic  motives, 
of  free  land,  equal  opportunity,  no  capitalist  class  and  little 
capital,  and  equal  laborers.  But  it  is  generally  true  only  when 
it  is  deprived  of  a  determinative  significance  and  taken  to 
express  the  rather  obvious  truth  that  the  wage  ought  to  lie 
somewhere  between  subsistence  and  product. 

One  cannot  but  be  reminded  of  Ricardo's  difficulties  in 
dealing  with  different  proportions  of  fixed  and  circulating  capi- 

principle  of  final  valuation  and  the  basing  of  valuation  on  productivity"; 
and  goes  on  to  indicate  certain  criticisms  of  Thiinen's  thought  in  regard  to 
which  alone  recent  marginal-productivity  theory  is  an  advance.  (Distribu- 
tion of  Wealth,  p.  324,  note.) 

1  Schumacher,  Ein  Forsckerleben,  p.  239. 


THUNEN  AND   THE  ISOLATED  STATE  289 

tal  in  working  out  his  attempt  at  a  labor  theory  of  value.  In 
any  such  attempt  the  proportions  of  labor  and  capital  must 
be  known,  which  is  but  another  way  of  stating  that  capital  is 
more  than  stored-up  labor,  as  such.  There  is  another  element 
of  cost  or  time  involved,  which  makes  the  application  of  the 
labor-pain  or  labor-subsistence  value  solvent  impossible.  In 
this  Senior  was  wiser  than  Thiinen. 

But  one  must  not  forget  the  great  truths  which  accompany 
the  error.  The  emphasis  of  the  humanitarian  and  ethical  as- 
pects of  the  labor  problem,  while  not  primarily  an  economic 
matter,  is  important  for  the  application  of  theory.  Thiinen 
did  well,  too,  in  calling  attention  to  the  productivity  aspect 
and  criticizing  others  for  dealing  only  with  subsistence  and  supply 
of  labor.  The  breadth  of  his  thought  is  illustrated  by  another 
criticism  which  he  incidentally  passes  upon  the  economists. 
These,  he  says,  have  written  as  though  land  were  the  only  pro- 
ductive factor  to  be  economized.  While  it  is  true  that  the  total 
supply  of  land  is  limited  in  a  sense,  yet  there  are  places  where  it 
is  abundant  and  labor  is  scarce,  as  in  North  America.  Economic 
theory  should  be  broad  enough  to  accommodate  all  relations. 
As  already  implied,  Thiinen  is  the  father  of  an  idea  of  diminish- 
ing returns  that  is  broad  enough  to  be  applied  to  all  the  factors. 

Tariff ;  and  Miscellaneous.  —  Like  Adam  Smith,  Thiinen 
was  on  the  whole  a  strong  believer  in  free  trade  as  a  general 
proposition.  He  believed  that  both  the  strong  manufacturing 
nation  and  the  weaker  producer  of  raw  materials  were  injured  in 
material  wealth  by  tariff  restrictions.  This  theorem  he  deduced 
by  assuming  his  isolated  state  to  be  divided  into  two,  following 
with  an  application  of  his  deductions  to  the  actualities.  Such 
would  be  the  gist  of  his  idea  as  drawn  from  the  first  volume. 

Later,  however,  his  thought  appears  to  have  undergone 
some  modification,  for  in  the  second  part  of  the  second  volume 
his  conclusion  is  not  so  simple,1  though  not  changed  as  to 
general  tendency.  It  may  be  conjectured  as  a  strong  prob- 
ability that  an  acquaintance  with  List's  writings  was  the  occa- 
sion for  this  development.  Thiinen  contrasts  national  and  cos- 

1  See  II.  ii,  4,  4  (pp.  83  ff.). 
u 


290  ECONOMIC  THOUGHT 

mopolitan  viewpoints:  the  one  considers  relative  strength,  the 
other  absolute;  the  one  seeks  the  strength  of  the  nation,  the 
other  the  material  well-being  of  the  people.  Under  existing 
conditions  the  former  viewpoint  may  be  a  necessity.  He  in- 
clines to  hold  that  free  trade  cannot  be  preached  as  an  absolute 
good.  And,  as  he  says :  "So  Adam  Smith  in  defending  free 
trade  generally  held  the  cosmopolitan  standpoint;  but  there 
are  places  in  his  work  which  take  a  national  standpoint,  and 
consequently  both  opponents  and  followers  can  find  support 
for  their  views."  *  Thiinen's  reasoning  differed  somewhat  from 
List's  in  that  he  considered  both  agriculture  and  manufactures, 
though  chiefly  the  former;  while  List's  argument  proceeded 
largely  on  the  basis  of  manufactures.2 

The  assumption  that  each  individual  knows  his  own  interest 
and  acts  accordingly  is  specifically  made ;  and,  moreover,  some 
evidence  of  a  tendency  to  believe  optimistically  in  an  economic 
harmony  appears,  for  he  says :  "  As  from  the  interaction  of  all, 
each  striving  for  his  own  rightly  understood  advantage,  the  law 
according  to  which  the  community  acts,  arises,  so  on  the  other 
hand  must  the  advantage  of  the  individuals  be  comprised  in 
the  observance  of  these  laws." 

Moreover  there  is  apparent  a  tendency  to  regard  the  laws 
of  society  as  being  the  outcome  of  a  divine  plan,  for  "man  is 
the  tool  in  the  hand  of  a  higher  power  "  unconsciously  working 
out  His  great  ends. 

Conclusion.  —  The  conclusion  is,  in  brief,  that  Thiinen  pro- 
duced a  masterly  piece  of  deductive  economic  thought,  based 
in  part  upon  careful  statistical  investigation;  and  independ- 
ently developed  the  law  of  rent  in  an  admirably  clear  fashion. 
He  was  the  first  economist  to  treat  clearly  and  systematically 
of  the  influence  of  distance  from  the  market  upon  the  economics 
of  agriculture.  His  method  of  approaching  the  price-deter- 
mination problem  clearly  suggests  the  Austrian  school's  pro- 
cedure, and  the  marginal  productivity  idea  is  clearly  put,  — 
though  it  is  properly  connected  with  cost.3 

1  Ibid.,  p.  85. 

*  This  point  is  put  somewhat  too  strongly  by  Biichler,  Von  Thiinen. 

1  ist  ed.,  p.  253. 


THUNEN  AND   THE  ISOLATED  STATE  291 


III.    OPPONENTS   AND  LEADING  CRITICS 

A  majority  of  the  preceding  economists  who  have  been 
classed  as  Smith's  followers  took  occasion  now  and  then  to 
criticize  their  master  as  well  as  each  other.  On  certain  points 
Malthus  criticizes  Ricardo,  and  Ricardo  assails  the  logic  of 
Malthus,  while  both  find  imperfections  in  the  Wealth  of  Nations. 
Such  men,  too,  as  Senior  and  Thlinen  were  independent  in  a 
considerable  degree,  and  did  not  fail  to  point  out  weak  spots 
in  the  classical  economics.  Yet  they  all  wrote  within  the 
framework  of  its  doctrines  as  laid  down  by  Smith  and  Ricardo, 
on  the  whole  accepting  the  typical  theories  of  production,  value 
and  distribution,  and  free  trade.  Whether  tending  toward 
pessimism  or  optimism,  believing  in  this  particular  modification 
or  that,  the  foregoing  economists  have  been,  for  the  most  part, 
at  bottom  in  accord  with  the  doctrines  of  the  English  Classical 
School. 

It  is  no  simple  matter  to  classify  those  who,  on  the  other 
hand,  opposed  the  classical  economics  or  criticized  it  in  so 
fundamental  a  manner  as  to  make  it  illogical  to  range  them 
among  the  followers.  By  no  means  all  of  the  critics  are  dis- 
cussed ;  but  only  those  whose  criticisms  seem  the  most  funda- 
mental, taken  together  with  a  considerable  degree  of  influence. 
They  have  been  divided  into  three  groups:  (i)  those  whose 
thought  was  based  upon  a  philosophy  which  was  opposed  to 
the  underlying  system  of  the  Classicists,  (2)  those  who  are  most 
notable  for  their  criticisms  of  the  method  of  reasoning  pursued, 
and  (3)  those  whose  chief  criticism  concerns  the  logic  of  the 
theories,  regardless  of  philosophy  or  method.  In  other  words, 
there  were  some  who  directed  their  assault  upon  its  funda- 
mental assumptions,  opposing  its  underlying  philosophy  and  its 
ethical  basis.  Others  centered  their  attention  upon  the  method 
pursued  by  the  Classicists,  criticizing  their  logical  processes, 
while  others  cared  relatively  little  about  philosophy  or  method 
in  themselves,  but  attacked  the  conclusions  reached  as  being 
illogical. 


292  ECONOMIC  THOUGHT 

Of  course  the  heads  of  such  a  classification  cannot  be  all- 
inclusive  and  exclusive,  and,  needless  to*  say,  some  critics 
opposed  Smith  and  his  followers  on  all  three  grounds.  Just 
as  philosophy  and  method  are  related,  so  the  thinkers  who 
criticize  the  logical  method  of  the  older  economists  are  apt 
also  to  be  at  variance  with  them  in  underlying  philosophy; 
and  many  criticisms  of  the  logic  of  the  classical  theories  were 
made  by  economists  placed  under  one  of  the  first  two  heads. 
Nevertheless  it  seems  desirable  to  distinguish  these  groups, 
emphasizing  the  main  characteristics.  It  is  generally  possible 
to  say  that  this  or  that  opponent  or  critic  directed  his  atten- 
tion chiefly  to  one  or  the  other  of  these  three  phases  of  thought. 
Generally  one  of  the  above  points  of  attack  is  hit  the  hardest. 
It  will  lead  to  a  clearer  understanding  of  the  weaknesses  of 
the  classical  economics  and  to  a  better  appreciation  of  the 
several  groups  of  opponents. 

i.    THE  PHILOSOPHICAL   AND   ETHICAL   SYSTEM 

One  of  the  earliest  and  most  frequent  grounds  of  criticism 
has  been  the  general  underlying  philosophy  of  the  economics 
of  Smith  and  his  followers.  This  philosophy  tended  toward 
materialism,  individualism,  and  utilitarianism.  It  tended  to 
leave  ethical  factors  out  of  consideration,  and  to  shun  ethical 
responsibility ;  to  make  self-interest  its  sole  basis  and  to  recog- 
nize little  or  no  good  in  government  interference  with  industry ; 
to  assume  that  humanity  consists  of  "  economic  men  "  who 
determine  courses  of  action  by  balancing  pleasures  against 
pains  to  ascertain  a  balance  of  utility.  It  had  the  idea  of  an 
unlimited  possibility  of  expansion  in  wants  and  of  an  indefinite 
sum  of  satisfactions.  Furthermore  there  was  a  tendency  to 
regard  men  as  equal  by  nature,  and  consequently  the  idea  of 
cosmopolitanism  was  easy.  Men  being  naturally  pretty  much 
equal,  actual  differences  must  be  due  to  environment :  this  was 
a  part  of  the  materialistic  tendency. 

Of  course  all  the  followers  of  Adam  Smith  did  not  show  all 
these  tendencies.  They  varied  in  the  number  of  the  tendencies 


PHILOSOPHICAL  AND  ETHICAL  CRITICISM  293 

exhibited  and  the  degree  in  which  they  were  emphasized. 
Taken  together,  however,  these  tendencies  form  a  closely  con- 
nected group ;  and  the  foregoing  paragraphs,  together  with  the 
sections  on  philosophy  and  method  in  the  preceding  chapters, 
will  give  a  sufficiently  clear  idea  of  that  which  the  following 
thinkers  attacked. 


a.   INDIVIDUALISTIC  CRITICS 

The  relation  of  the  individual  to  the  state  has  from  the  be- 
ginning been  a  chief  point  of  dispute  in  economic  thought.  The 
social  philosophy  of  the  Physiocrats  and  Adam  Smith,  on  the 
whole,  favored  individualism  and  laisser  faire.  It  was  based 
upon  the  assumption  that  the  economic  interests  of  individuals 
and  nations  are  materially  the  same.  One  of  the  earliest  at- 
tacks upon  their  system  centered  upon  this  idea. 

It  is  interesting,  however,  to  observe  that  several  different 
points  of  view  were  taken  by  those  who  opposed  that  philosophy, 
some  rejecting  it  in  part,  others  in  its  entirety.  Thus  the  least 
radical  group  accepted  the  individualism,  but  sought  to  make 
it  more  humanitarian  by  limiting  laisser  faire,  being  as  a  rule 
less  hopeful,  or  careless,  than  the  Classicists  proper.  There  was, 
then,  an  individualistic  criticism.  But  others  rejected  indi- 
vidualism, and  while  they  did  not  go  so  far  as  to  advocate  a 
socialization  of  property,  they  emphasized  the  nation  as  an 
economic  unit,  favoring  more  or  less  interference  with  industry 
for  national  ends.  These  were  nationalists  in  their  criticism. 
They  opposed  that  part  of  the  individualistic  tendency  which 
leads  to  cosmopolitanism,  regarding  men  as  world  citizens. 
Finally,  the  Socialists  must  be  noted  among  the  opponents  and 
critics,  along  with  the  individualists  and  nationalists.  They 
have  been  the  most  radical  of  all,  though  the  prevalence  of 
misinterpretation  and  inconsistency  sometimes  makes  Socialism 
seem  quite  in  harmony  with  certain  points  in  the  philosophy  and 
doctrine  of  the  economists.  Socialism,  however,  is  the  antithe- 
sis of  individualism,  and  it  must  logically  ever  tend  toward 
idealism  in  philosophy,  while  thorough-going  Socialists  have 
always  opposed  the  most  fundamental  postulates  of  economics. 


294 


CHAPTER   XVIII 

LAUDERDALE  AND  RAE  AS  INDIVIDUALISTIC  CRITICS: 
SOCIAL  AND  INDIVIDUAL  WEALTH 

Lauderdale.  —  Early  in  the  nineteenth  century  two  shrewd 
and  eccentric  Scotchmen  wrote  books  in  which  they  opposed 
Smith's  economic  system  in  a  fundamental  way.  While  accept- 
ing his  individualistic  viewpoint,  they  took  the  Wealth  of 
Nations  to  task  on  the  ground  that  it  confused  public  and 
private  wealth.  The  first  of  these  was  Lord  Lauderdale  (1759- 
1830),  who  in  1804  published  his  Inquiry  into  the  Nature  and 
Origin  of  Public  Wealth  and  into  the  Nature  and  Causes  of  its 
Increase.  French  and  German  translations  of  this  work  ap- 
peared in  1808,  and  an  enlarged  English  edition  in  1819.  Its 
main  points  concern  value,  wealth,  and  capital,  hi  treating  all  of 
which  the  author  showed  much  originality  and  had  a  very 
considerable  effect.  More  will  be  said  of  his  ideas  on  value 
and  capital  in  other  chapters. 

At  the  very  outset,  he  emphasizes  the  importance  of  defining 
terms  and  analyzing  their  meaning ;  and  he  particularly  stresses 
the  distinction  between  "  wealth  "  and  "  riches."  The  latter 
term  he  uses  to  designate  private  wealth.  The  former  consists 
of  "  all  that  man  desires,  as  useful  or  delightful  to  him"  (56). 

Then,  in  his  chapter  on  public  wealth  and  private  riches 
(pp.  43  ff.),  Lauderdale  begins  by  stating  that  all  previous  writers 
had  made  the  mistake  of  confusing  individual  and  national 
wealth,  and  had  accordingly  made  national  wealth  equal  the 
sum  of  individual  riches.  With  such  an  idea  these  writers  had 
naturally  reasoned  that  the  proper  way  to  increase  national 
wealth  is  by  means  of  "  parsimony  "  (saving) ;  for  that  is  the 
way  in  which  individuals  become  rich. 

295 


296  ECONOMIC  THOUGHT 

But  here  Lauderdale  points  to  the  fact  that  the  riches  of  the 
individual  depend  in  part  upon  the  scarcity  of  the  things  saved, 
or,  as  we  would  say,  his  wealth  is  the  exchange  value  of  his  prop- 
erty. And  he  asks,  does  not  common  sense  revolt  at  the  idea 
of  increasing  wealth  by  making  things  scarce?  "  For  example," 
he  says,  "  let  us  suppose  a  country  possessing  abundance  of  the 
necessaries  and  conveniences  of  life,  and  universally  accommo- 
dated with  the  purest  streams  of  water :  what  opinion  would 
be  entertained  of  the  understanding  of  a  man,  who,  as  the  means 
of  increasing  the  wealth  of  such  a  country,  should  propose  to 
create  a  scarcity  of  water,  the  abundance  of  which  was  de- 
servedly considered  as  one  of  the  greatest  blessings  incident  to  the 
community  ?  It  is  certain,  however,  that  such  a  projection 
would,  by  this  means,  succeed  in  increasing  the  mass  of  individ- 
ual riches ;  for  to  the  water,  which  would  still  retain  the  quality 
of  being  useful  and  desirable,  he  would  add  the  circumstance 
of  existing  in  scarcity,  .  .  .  and  thus  the  individual  riches  of 
the  country  would  be  increased  in  a  sum  equal  to  the  value 
of  the  fee-simple  of  all  the  wells"  (44-45).  Or,  hi  the  case  of 
food,  to  increase  the  supply  would  act  vice  versa.  Or,  again, 
would  the  declaration  of  a  war  which  decreased  the  capital  value 
of  the  national  debt,  rents,  and  other  incomes,  and  so  reduced 
private  riches,  decrease  the  lands,  or  waters,  or  any  of  the  wealth 
of  the  nation  ?  Surely  not. 

He  concludes  that  it  is  very  important  to  observe  that  in 
proportion  as  the  riches  of  individuals  are  increased  by  an  aug- 
mentation of  the  value  of  any  commodity,  the  wealth  of  the 
nation  is  generally  diminished  (50).  This  strongly  suggests 
opposition  between  public  and  private  interest.  Indeed,  he 
remarks :  "  ...  nothing  but  the  impossibility  of  general  com- 
bination protects  the  public  wealth  against  the  rapacity  of 
private  avarice"  (54). 

In  following  chapters,  Lauderdale  treats  of  the  source  of  wealth 
and  the  means  of  augmenting  it,  criticizing  Smith  vigorously 
on  such  points  as  non-productive  labor,  division  of  labor,  and 
function  of  capital.  He  concludes  that  wealth  can  be  increased 
only  by  the  means  which  produced  it,  namely,  production  by 


LAUDERDALE   AND   RAE  :  SOCIAL   WEALTH  297 

land,  labor,  and  capital ;  parsimony,1  "  baneful  passion  of  ac- 
cumulation," cannot  avail. 

Lauderdale's  emphasis  of  consumption  and  demand,  and 
his  shrewd  observations  on  the  effects  of  varying  distribution 
of  wealth  are  remarkable.  He  was  far  in  advance  of  his  con- 
temporaries in  these  matters. 

In  his  discussion  of  accumulation  and  consumption,  he  may 
be  dubbed  the  father  of  the  overproduction  idea.2 

The  breadth  of  his  reading  is  also  notable,  as  he  cites  Xeno- 
phon,  Locke,  Petty,  Vauban,  Gregory  King,  Harris,  Hume, 
"  the  works  of  all  the  (Economists  "  (Physiocrats),  William 
Pulteney,  Hooke,  Smith,  Malthus,  and  others. 

To  Americans,  at  least,  it  is  of  interest  to  note  that  an  early 
economist  of  the  United  States,  Daniel  Raymond  (1820),  refers 
to  Lauderdale  and  virtually  follows  him  in  contrasting  social 
with  individual  wealth.3  In  Germany  one  of  the  chief  econo- 
mists influenced  by  him  was  Hermann.  One  of  the  many 
writers  of  the  early  nineteenth  century  who  read  and  were 
influenced  by  Lauderdale  was  John  Rae,  concerning  whom  a 
word  must  be  said  next. 

John  Rae.  —  The  American  writer  John  Rae  furnishes 
another  instance  of  early  criticism  of  Smith's  economics  which 
should  not  be  forgotten.  Rae  was  a  Scotch  immigrant,  first 
to  Canada  and  later  to  the  United  States.  His  book  was 
published  in  1834  at  Boston,  Massachusetts,  and  was  entitled, 
Statement  of  Some  New  Principles  on  the  Subject  of  Political 
Economy,  Exposing  the  Fallacies  of  the  System  of  Free  Trade,  and 
of  Some  Other  Doctrines  maintained  in  the  "  Wealth  of  Nations,"  * 
While  the  title  perhaps  unduly  emphasizes  the  merely  critical 
part  of  the  work,  it  sufficiently  suggests  the  reason  for  pre- 
senting a  brief  treatment  of  its  author  at  this  point. 

The  first  book  of  the  New  Principles  is  headed,  "  Individual 

1  Considered  as  a  national  policy,  not  world-wide.     See  p.  266. 

2  See  below,  p.  307.  s  Cf.  above,  p.  239. 

4  Rae's  work  has  been  rearranged  and  edited  by  Dr.  C.  W.  Mixter,  and 
reprinted  under  the  title,  The  Sociological  Theory  of  Capital.  (New  York, 
1905.)  This  reprint  contains  a  biographical  sketch  and  notes  by  the  editor. 


298  ECONOMIC  THOUGHT 

and  National  Interests  are  not  Identical."  Rae  adopts  Lauder- 
dale's  general  idea  of  a  difference  between  public  and  individual 
interests,  and  develops  a  theory  of  government  interference  in 
harmony  with  it.  His  idea  differs  from  Lauderdale's,  however, 
in  that  he  does  not  consider  a  difference  in  the  wealth  itself, 
but  one  in  the  "  causes  giving  rise  to  individual  and  national 
wealth."  His  treatment  is  diffuse  and  lacks  the  verve  and 
acumen  of  Lauderdale's  thought ;  but  it  is  his  merit  that  he 
clearly  shows  how  fundamental  to  Smith's  thought  is  the  notion 
of  an  identity  between  national  and  individual  wealth,  and 
that  he  connects  his  analysis  with  public  policy. 

Rae  states  Smith's  case  thus :  "  The  axiom  which  he  brings 
forward,  that  the  capital  of  a  society  is  the  same  with  that  of 
all  the  individuals  who  compose  it,  being  granted,  it  follows  that 
to  increase  the  capitals  of  all  the  individuals  in  a  society  is  to 
increase  the  general  capital  of  the  society.  It  seems,  therefore, 
also  to  follow  that  as  every  man  is  best  judge  of  his  own  business 
and  of  the  modes  in  which  his  own  capital  may  be  augmented, 
so  to  prevent  him  from  adopting  these  modes  is  to  obstruct  him 
in  his  efforts  to  increase  his  own  capital,  and  ...  to  check  the 
increase  of  ...  general  capital;  and  hence,  that,  as  all  laws 
for  the  regulation  of  commerce  are  in  fact  means  by  which  the 
legislator  prevents  individuals  conducting  their  business  as  they 
themselves  would  deem  best,  they  must  operate  prejudicially 
on  the  increase  of  individual  and  so  of  general  wealth."  l  Fur- 
thermore, Rae  points  out  that  it  is  assumed  that  as  the  capital 
of  a  single  individual  grows  through  saving  and  accumulation, 
so  the  national  capital  is  increased  in  the  same  way. 

This  whole  scheme  Rae  rejects.  In  the  first  place,  even 
assuming  that  individual  and  social  interests  are  the  same,  it  is 
not  true  that  saving  from  revenue  is  the  sole  means  that  an 
individual  uses  to  increase  capital.  He  must  first  gain  his 
revenue,  and  thus  the  amount  he  can  save  depends  partly  on 
his  talents  and  capacities.  Moreover,  the  fact  that  an  individual 
by  gambling  and  tricky  bargaining  may  gain  wealth  shows  that 
self-interest  does  not  always  lead  to  increased  national  wealth.2 

1  The  Sociological  Theory  of  Capital,  Mixter  ed.,  p.  380.        *  Ibid.,  p.  345. 


LAUDERDALE  AND  RAE:  SOCIAL  WEALTH  299 

But  it  is  not  true  that  social  and  individual  interests  are  iden- 
tical, nor  that  the  causes  giving  rise  to  wealth  are  the  same  in  the 
two  cases.  For,  while  it  is  generally  true  that  an  individual  can 
find  employment  and  so  obtain  an  income  from  which  he  can 
save,  in  the  case  of  a  nation  the  "  materials  on  which  the  national 
industry  may  be  employed  are  to  be  provided,  and  often  are  or 
may  be  wanting."  l  Individuals  seem  generally  to  grow  rich 
by  grasping  a  portion  of  existing  wealth ;  nations,  by  the  pro- 
duction of  new  wealth.  "  The  two  processes  differ  hi  this,  that 
the  one  is  acquisition,  the  other  creation."  2 

But  creation  of  wealth  depends  upon  invention,  and  national 
wealth  can  be  increased  only  through  the  aid  of  the  inventive 
faculty.3  Thus  the  power  of  invention  plays  a  leading  part 
in  Rae's  thought. 

In  this  connection  it  may  be  remarked  that  Rae  also  criti- 
cizes Smith's  treatment  of  division  of  labor,  holding  that  it 
springs  from  invention  rather  than  the  reverse,  and  hence  is 
effect  rather  than  cause.  And,  of  course,  there  is  an  element 
of  truth  in  this,  for  in  reality  the  two  are  interrelated,  each  being 
now  cause  and  now  effect. 

In  harmony  with  the  foregoing  ideas,  Rae  opposed  a  strong 
tendency  of  the  Classical  School  in  holding  that  there  is  no  pre- 
sumption against  governmental  interference.  From  what  has 
already  been  written  it  is  evident  that  he  assails  the  presump- 
tion in  favor  of  laisser  faire.  But  elsewhere  he  approaches  the 
question  in  a  different  way.  He  centers  his  criticism  at  this 
point  largely  on  the  distinction  between  natural  and  artificial. 
He  says  that  society  is  natural,  proceeding  from  the  operation 
of  natural  forces,  both  subjective  and  objective.  But  the  states- 
man cannot  be  separated  from  society  nor  the  actions  generated 
by  him  be  called  unnatural.  Therefore  the  interference  of  the 
legislator  is  natural,  and,  Rae  thinks,  often  beneficial.  He  may 
promote  intelligence  and  invention,  and  prevent  dissipation 
of  the  community's  funds. 

Though  criticism  of  method  might  more  logically  be  reserved 
for  later  discussion,  Rae's  is  so  unique  and  so  entwined  with 

1  Ibid.,  p.  381.  *  Ibid.,  p.  383.  » Ibid.,  p.  386. 


300  ECONOMIC  THOUGHT 

his  criticism  of  the  philosophy  that  it  can  hardly  be  passed  over 
without  a  word  here.  Smith's  method,  Rae  says,  is  not  truly 
scientific,  that  is,  inductive.  There  are  two  sorts  of  philosophy, 
he  explains:  one  is  explanatory  and  systematic,  the  other  is 
inductive  or  scientific.  The  former  seeks  merely  to  explain 
phenomena,  as  does  Smith,  fitting  them  into  some  machinery 
of  "  natural  "  assumptions.  Furthermore  it  generalizes  from 
familiar  and  ill-defined  notions,  and  the  confusion  in  Smith's 
use  of  the  terms,  value,  wealth,  stock,  capital,  self-interest, 
desire  of  bettering  one's  condition,  etc.,  are  illustrative.  The 
doubts  and  difficulties  into  which  political  economy  has  fallen 
since  Smith's  day  are  evidence  to  the  weakness  of  his  method. 
"  If  we,  therefore,  view  his  work  as  an  attempt  to  establish  a 
science  of  wealth,  on  the  principle  of  the  experimental  or  inductive 
philosophy,  it  is  exposed  to  the  censure  of  transgressing  every 
rule  of  that  philosophy." 

Just  what  influence  Rae  exerted  is  not  clear.1  John  Stuart 
Mill  was  acquainted  with  his  book,2  and  it  may  be  conjectured 
that  some  of  his  modifications  of  the  classical  system  were  the 
result.  An  English  economist,  Hearn,  who,  as  will  be  seen,  had 
some  influence  on  Jevons,  also  knew  Rae's  work.  In  1856  an 
Italian  translation  was  made. 

Summary.  —  Both  of  the  writers  discussed  in  this  chapter 
emphasized  the  distinction  between  social  or  national  wealth 
and  individual  wealth,  pointing  to  a  lack  of  identity  in  public 
and  private  interests,  and  suggesting  the  advantage  of  consid- 
erable government  interference.  Rae,  however,  chiefly  develops 
the  idea  of  the  different  causes  which  increase  the  social  and 
individual  wealth. 

Both  criticize  Smith's  emphasis  of  saving  or  parsimony, 
Lauderdale  hitting  it  the  harder  of  the  two.  Lauderdale  em- 

1  See  Mixter's  biographical  sketch  in  The  Sociological  Theory  of  Capital, 
above  cited,  and  the  references  it  contains.     For  Rae's  anticipation  of  im- 
portant points  in  the  theory  of  capital  and  interest,  see  ibid. 

2  Mill  quotes  Rae  with  approval  in  dealing  with  division  of  labor  and 
motives  to  saving  under  the  head  of  production.     He  also  mentions  Rae  in 
connection  with  taxation. 


LAUDERDALE   AND   RAE :   SOCIAL  WEALTH  301 

phasizes  labor  as  the  means  of  increasing  wealth ;  Rae,  the  skill, 
dexterity,  and  direction  of  labor  in  creating  wealth.  The  latter 
makes  invention  the  main  factor. 

Both  have  the  idea  of  a  contrast  between  utility  and  exchange 
value  underlying  their  thought,  though  this  is  far  more  marked 
in  Lauderdale's  case.  It  is  interesting  to  note  a  similarity  with 
the  Physiocrats  at  this  point.  Lauderdale,  indeed,  says  that  the 
Physiocrats  were  nearer  the  truth  in  their  ideas  on  "  wealth  " 
production  than  Smith ;  and  Rae,  in  arguing  that  national  wealth 
is  increased  only  by  creating  new  wealth,  reminds  one  strongly 
of  the  produit  net. 

It  is  easy  enough,  when  one  takes  this  tack,  —  and  especially 
if  ethical  notions  are  mixed  up  with  one's  idea  of  utility,  —  to 
conceive  of  general  overproduction.  For  then  production  con- 
sists in  making  goods  which  men  "  need  "  (not  want)  and  in 
such  quantities  as  are  necessary,  or  "  beneficial  "  to  them. 
Accordingly,  as  already  suggested,  Lauderdale  laid  a  basis  for 
the  ideas  on  overproduction  for  which  two  other  economists 
with  Physiocratic  leanings,  Malthus  and  Sismondi,  are  well 
known. 


CHAPTER   XIX 

SISMONDI:    THE    EMPHASIS    OF    INCOME    AND    CON- 
SUMPTION 

AMONG  the  earliest  to  revolt  from  the  philosophy  and  ethics 
of  the  classical  economists  was  the  French  writer,  Sismondi. 
This  thinker  well  illustrates  the  difficulty  of  making  the  three- 
fold classification  of  opponents  very  rigid ;  for  his  criticism  on 
the  score  of  method  is  all  but  as  important  as  his  general  revolt 
against  the  spirit  of  Smith's  system,  while  he  attempted  several 
criticisms  of  particular  theories.  Yet,  after  all,  the  notable  thing 
about  Sismondi  is  his  ethical  spirit  and  his  rebellion  against  the 
underlying  system.  He  desired  considerable  state  regulation 
for  social  reform,  but  inasmuch  as  he  did  not  advocate  Socialism, 
he  is  to  be  classed  as  a  limited  individualist. 

Life  and  Works.1  —  Jean  Charles  Leonard  Simonde  de  Sis- 
mondi was  born  in  Geneva,  Switzerland,  in  1773,  only  three 
years  before  the  publication  of  the  Wealth  of  Nations.  His 
father,  a  Protestant  clergyman  whose  ancestors  had  fled  from 
France  upon  the  revocation  of  the  Edict  of  Nantes,  had  destined 
young  Sismondi  for  business  pursuits ;  but  the  boy  was  given  a 
classical  education,  and  this,  together  with  experience  as  a  minor 
government  official,  and  travel  through  Germany  and  Italy, 
developed  his  taste  and  ability  for  historical  and  economic 
studies.  He  lived  until  1842,  and  was  the  author  of  numerous 
works  and  articles  in  his  chosen  field. 

Thus  Sismondi's  life  was  cast  among  stirring  events  and  great 
thinkers.  The  French  Revolution,  the  Napoleonic  wars,  the 
consummation  of  the  Industrial  Revolution,  were  witnessed  by 

1  See  Political  Economy  and  the  Philosophy  of  Government,  a  series  of 
Essays  Selected  from  the  works  of  M.  de  Sismondi,  by  M.  Mignet.  (Lon- 
don, 1847.) 

302 


SISMONDI:  THE  EMPHASIS  OF  CONSUMPTION       303 

him  and  their  attendant  evils  noted.  Malthus,  Say,  List,  and 
Ricardo  were  among  his  contemporaries. 

His  first  economic  writing  was  the  Tableau  de  V Agriculture 
Toscane  (1801),  followed  in  1803  by  his  more  important  work,  De 
la  Richesse  Commerciale  ou  Principes  de  V  Economic  Politique,  ap- 
pliques a  la  legislation  du  Commerce.  The  Richesse  Commerciale 
treats  of  capital,  price,  and  monopoly,  closely  following  Adam 
Smith's  ideas.  If  Sismondi  had  never  written  again  upon  politi- 
cal economy,  he  would  have  gone  down  in  history  with  a  bare 
word  to  the  effect  that  he  was  among  the  minor  earlier  followers 
of  Smith. 

Then  for  a  space  of  sixteen  years  important  economic  writing 
ceased.  But  history  engaged  his  attention,  and  a  close  study  of 
industrial  phenomena  around  him.  He  observed  the  suffering 
and  hardship  which  accompanied  the  close  of  the  Napoleonic 
wars,  and  the  extent  and  severity  of  the  crises  of  1815, 1818-1819, 
and  1825.  He  studied  England,  the  land  of  industrial  progress 
and  political  economy,  and  there  he  saw  the  rich  growing  richer 
while  the  poor  grew  poorer.  He  saw  relative  overproduction 
and  unemployment ;  and  he  remarked,  as  he  states  in  the  preface 
of  his  next  book,  that  the  laborers,  having  become  mere  proleta- 
rians, cast  off  all  restraint  upon  the  size  of  their  families.  He  saw 
danger,  too,  in  the  extended  use  of  paper  money  and  bank  credit. 

The  book  last  referred  to  was  his  chief  economic  work,  the 
Nouveaux  Principes  d' Economic  Politique  ou  de  la  Richesse  dans 
ses  rapports  avec  la  Population  (New  Principles  of  Political 
Economy,  or  of  Wealth  in  its  relations  with  Population),  which 
was  published  in  iSig.1  A  second  edition,  considerably  en- 
larged, appeared  in  1827.  In  this  new  work  Sismondi  presents  a 
remarkable  change  of  front.  While  still  adhering  to  some  of  the 
main  doctrines  of  Adam  Smith  and  the  Classical  School,  he  draws 
radically  different  conclusions,  and  places  the  emphasis  upon  new 
matters.  For  Smith  and  his  work  he  professes  admiration 
and  would  even  acknowledge  his  leadership;  but  he  would 
complete  and  make  new  applications  of  his  master's  doc- 

1  It  resulted  from  and  was  based  upon  an  article  which  he  undertook  to 
prepare  for  an  encyclopedia. 


304  ECONOMIC  THOUGHT 

trines,  and  he  sharply  criticizes  Say,  Malthus,  Ricardo,  and 
M'Culloch.1 

In  his  last  important  economic  work,  Etudes  sur  V Economic 
Politique  (1837-1838)  his  new  ideas  are  reiterated:  the  econo- 
mists, he  states,  had  been  swept  off  their  feet  by  the  spirit  of  in- 
dustrial progress.  He,  however,  had  seen  the  suffering  of  society 
in  an  age  of  "  progress  "  too  clearly  to  go  with  them.  Through 
observation  and  historical  study  he  had  been  led  to  abandon  their 
conclusions.2 

His  Economic  Thought.  —  i.  Scope  of  Economics  and  Criteria 
of  Progress.  In  his  outlook  and  purpose  Sismondi  differs  from 
the  Classical  School.  He  was  a  reformer.  Ethical  considera- 
tions played  a  large  part  in  his  thought ;  and  to  him  economics 
was  largely  an  art.  He  aimed  to  put  economics  upon  a  new 
basis:  the  economists  had  taught  how  to  increase  national 
wealth;  he  would  teach  how  to  increase  national  happiness, 
and  to  this  end  would  point  out  the  advantages  of  government 
intervention  to  regulate  the  progress  of  wealth. 

Accordingly  his  views  concerning  the  scope  of  economics  and 
the  criteria  of  economic  progress  were  at  variance  with  the  domi- 
nant theories.  To  Sismondi  enjoyment  or  happiness  is  the  sole 
end  of  accumulation,  and  in  it  consists  the  true  wealth  of  the 
nation.3  And  he  criticizes  the  current  emphasis  on  production, 
calling  the  classical  economics  chrematistique  (money-making 
science).4  Consumption,  then,  plays  a  large  part  in  his  system : 
the  history  of  all  wealth  is  the  same,  —  it  is  destined  to  yield 
enjoyments  through  its  destruction  or  consumption.5 

As  limiting  consumption,  income,  he  says,  rather  than  capital, 
is  the  important  thing.  But,  as  in  the  "  public  fortune  "  the 
capital  of  one  is  the  income  of  another,  the  economists  have  been 
embarrassed  in  deciding  what  is  income  and  what  capital,  and 
have  therefore  left  revenue  out  of  consideration.6 

Neither  material  wealth  nor  population  is  an  absolute  sign 

1  Now.  Prin.,  I,  Preface,  and  pp.  50-51.    References  are  to  the  second 
edition.  4  Cf .  Aristotle's  Thought,  above,  p.  46. 

2  Etudes,  II,  211.  *  Now.  Prin.,  pp.  58  ff. 
J  Now.  Prin.,  I,  51.  '  Ibid.,  p.  9,  Preface. 


SISMONDI:  THE  EMPHASIS  OF  CONSUMPTION       305 

of  prosperity;  that  depends  on  the  relation  between  the  two. 
"  Population  is  an  advantage  only  when  each  man  is  sure  of 
finding  an  honest  living  by  labor."  1 

"  I  have  endeavored,"  writes  Sismondi,  "  to  establish  .  .  .  that  to 
allow  wealth  to  contribute  to  the  well  being  of  all,  as  being  the  sign 
of  all  the  material  enjoyments  of  man,  it  is  necessary  that  its  increase 
should  conform  to  the  increase  of  population  and  that  its  distri- 
bution take  place  among  that  population  in  a  proportion  that 
can  be  disturbed  only  with  extreme  danger.  I  propose  to  show  that 
it  is  necessary  for  the  well-being  of  all  that  income  increase  with  capi- 
tal, that  population  do  not  exceed  a  living  income,  and  that  pro- 
duction be  proportioned  equally  to  capital  which  produced  it  and 
population  which  consumed  it." 2 

2.  His  Scheme  of  Distribution.  —  According  to  these  notions, 
Sismondi  worked  out  a  scheme  of  distribution  which  cannot  but 
remind  one  of  Quesnay's  in  its  pretentiousness.  As  nearly  as 
it  can  be  reduced  to  exact  statement,  —  for  his  terminology 
is  not  free  from  inconsistency,  —  that  scheme  is  as  follows.3 
We  begin  with  the  national  revenue,  through  which  the  popula- 
tion is  to  acquire  its  consumables.  In  this  national  revenue 
two  parts  may  be  distinguished :  (i)  profits  on  capital  and  land, 
which,  though  distinct,  may  be  classed  together  here;  and 
(2)  labor  power.  Of  these  parts  the  former,  profits,  is  of  the 
past.  It  is  the  result  of  the  labor  of  the  previous  year,  in  the 
hands  of  consumers.  Labor  power,  on  the  other  hand,  is  future, 
as  it  were,  only  becoming  wealth  through  opportunity  and  ex- 
change. Labor  acquires  a  new  right  each  year  by  new  labor ; 
capital  holds  a  permanent  right  based  upon  control  of  past  labor. 
On  the  whole,  there  is  an  opposition  of  interests  between  the 
classes  receiving  the  two  shares ;  yet  a  certain  relation  exists 
between  these  shares  in  that  they  have  the  same  origin. 

This  national  revenue  is  destined  to  be  exchanged  for  the 
national  production  (of  the  ensuing  year),  to  which  it  should  be 
equal.  The  annual  production  likewise  consists  of  profits  and 
labor  power. 

The  annual  national  production  is,  then,  consumed  annually, 
labor  giving  labor-power  in  exchange  (for  its  share),  and  capital 

1  Ibid.,  I,  p.  9.  l  Ibid.,  Pref.  x-ri.  » Ibid.,  pp.  104  ff. 

x 


306  ECONOMIC  THOUGHT 

giving  of  its  revenue  (or  interest).  The  labor-power,  we  are  told, 
becomes  converted  into  capital,  and  is  then  reproduced  as  in 
other  capital.  By  this  annual  consumption,  involving  the  ex- 
change of  one  year's  revenue  for  the  production  of  the  next,  each 
maintains  his  consumption  or  replaces  his  capital. 

If  true  economy  is  used,  therefore,  and  things  go  prosperously, 
the  annual  consumption  is  exactly  limited  by  the  national  rev- 
enue, and  all  that  is  produced  is  consumed.1  When  this  is  not  the 
case  it  is  obvious  that  the  desired  equilibrium  is  disturbed  and 
that  either  overproduction  or  underproduction  must  result. 
This  equilibrium  involves  an  exchange  of  all  that  is  called  capital 
for  labor,  the  former  being  the  revenue  of  the  labor  class ;  and 
if  the  "  rich  "  consume  their  capital,  the  revenue  of  the  poor  for  the 
following  year  is  encroached  upon,  i.e.  not  spending,  but  saving, 
gives  more  employment  and  keeps  wages  up.  Sismondi  hardly 
considers  the  alternative  of  underproduction,  for  he  is  gunning 
for  the  doctrines  of  the  classical  political  economy  concerning 
productivity. 

Though  arguing  thus  concerning  an  equilibrium  of  production 
and  consumption,  Sismondi  did  not  advocate  an  absolute  stand- 
still or  circle ;  rather  he  thought  of  a  spiral  brought  about  by  a  very 
gradual  increase  in  production.  Even  this  would  cause  small 
losses  by  disturbing  the  proper  equilibrium,  but  they  might  be 
offset  by  future  benefits.2  A  series  of  small  losses  increasing 
capital  and  the  public  fortune,  in  this  consists  national  economy. 

In  this  general  connection  Sismondi  takes  occasion  to  criticize 
•"  the  economists."  They  had,  he  thought,  confused  past  reve- 
nue with  future  revenue  and  omitted  to  treat  of  consumption.3 
They  had  argued  for  an  increase  in  labor  as  being  possible  and 
desirable  as  a  first  step.  That  would  mean  an  increase  in  wealth, 
in  revenue,  and  in  consumption,  respectively,  consumption  thus 
being  placed  last.  But,  Sismondi  urges,  it  is  more  correct  to 
say  that  an  increase  in  the  demand  for  labor  must  come  first : 
that  is,  increased  revenue  and  consumption  must  precede  the 

1  Nouv.  Prin.,  I,  p.  115. 

*Ibid.,  I,  p.  121. 

3  Ibid.,  Liv.  II,  Chap.  VI. 


SISMONDI:  THE  EMPHASIS  OF  CONSUMPTION       307 

increase  in  labor  and  production.  Accordingly  more  wages 
would  have  to  be  paid,  whereas  wages  are  fixed  in  advance, 
being  limited  by  preexisting  revenue. 

3.  Overproduction  and  Machinery.  —  This  whole  scheme  of 
distribution  is  underlain  by  an  "  unorthodox  "  belief  as  to  the 
possibility  of  overproduction  which  militated  against  the  success 
of  the  work.  Sismondi  argues  that  if  the  annual  production 
were  in  excess  of  the  annual  revenue,  which  is  quite  possible, 
overproduction  would  be  the  result.  Capital  would  then 
suffer  loss,  labor  would  go  unemployed,  and  thus  the  consumers' 
gains  through  lower  prices  would  be  but  temporary.1 

In  reality  there  seem  to  have  been  two  different  notions  of 
overproduction  in  Sismondi's  mind :  one  concerned  use  values  or 
total  utility ;  the  other,  exchange  values.  It  is  not  unlikely  that 
he  was  confused  in  dealing  with  the  two.  His  reasoning  upon  the 
former  notion,  which  to  him  is  the  fundamental  one,  Sismondi 
appears  to  have  based  upon  the  need  for  repose.2  Repose 
or  rest  is  a  "  natural  "  taste  of  man.  It  is  the  reward  of  labor. 
Man  accumulates  only  to  consume,  which  implies  repose.  But 
under  the  dominant  system  laborers  must  work  on,  making  a 
superabundance  of  products,  many  of  which  are  luxuries.  Their 
efforts  are  thus  separated  from  their  reward.  That  a  line 
drawn  between  necessities  and  luxuries  is  also  an  essential 
part  of  Sismondi's  reasoning  here,  is  clear ;  for  it  is  only  for 
luxuries  that  man's  wants  are  unlimited,  and  it  is  in  multiply- 
ing goods  beyond  needs  that  overproduction  lies.  In  a  word, 
if  men  would  satisfy  their  needs  only,  including  repose,  the 
unremitting  labor  of  the  day  would  not  be  required. 

If  the  truth  of  his  semi-ethical  idea  of  necessities  and  luxuries 
be  granted,  and  the  statement  that  laborers  are  overworked, 
there  is  nothing  inherently  fallacious  in  the  reasoning  so  far. 
It  is  on  the  point  of  overproduction  of  exchange  values  that  Sis- 
mondi falls  into  positive  error.  Here  his  whole  idea  is  that  an 

1  Ibid.,  I,  pp.  118-119. 

2  See  Ibid.,  Liv.  II,  Chap.  III.      Repose  is  partly  defined  as  including 
change  of  activity  from  wealth  creation  to  enjoyment  and  to  intellectual 
and  artistic  development. 


308  ECONOMIC  THOUGHT 

increased  demand  must  precede  increased  production,  and  his 
criticism  of  the  economists  has  already  been  referred  to.  He  fails 
to  see  that  production  and  revenue  are  interdependent  in  the 
long  run ;  that  production  is  the  source  of  revenue ;  that  it 
indirectly  creates  and  directly  limits  demand.  He  fails  to  see 
the  significance  of  the  fact  that  as  a  general  proposition  exchange 
values  cannot  be  affected  by  changes  in  the  production  of  com- 
modities. Hence  he  is  led  to  uphold  the  possibility  of  a  universal 
glut  or  general  overproduction.  Indeed,  he  states  that  at  the 
time  he  wrote  such  a  condition  prevailed  and  had  been  in  exist- 
ence several  years.1 

While  he  calls  attention  to  important  truths,  Sismondi's  over- 
sights and  fallacies  on  this  point  are  many.  He  generalizes  too 
hastily  from  overproduction  in  particular  industries.  He  illogi- 
cally  breaks  into  the  round  of  production  and  consumption,  and 
assumes  revenue  and  demand  almost  as  if  they  were  something 
absolute,  this  being  accentuated  by  his  constant  separation  of  the 
operations  of  one  year  from  those  of  another,  thus  artificially 
chopping  industrial  life  into  segments.  He  ignores  the  decrease 
in  costs  which  frequently  attends  increased  production,2  in  this 
assuming  a  loss  to  capital  and  decreased  employment,  whereas 
decreased  expenses  of  production  would  permit  equal  net  earn- 
ings and  increased  employment.  He,  in  his  pessimism,  does  not 
consider  facts  as  to  increased  consumption  nor  as  to  its  greater 
variety.  And,  finally,  as  a  criticism  of  the  Ricardian  school,  his 
arguments  are  weakened  by  not  making  due  allowance  for  their 
assumptions 3  as  to  length  of  time,  mobility,  and  economic 
motive. 

But  his  truths  are  not  to  be  forgotten.  He  justly  criticized 
the  economists  for  reasoning  so  abstractly  as  to  overlook  the  delay 

1  See  the  article  on  "  Balance  des  consommations  avec  les  productions  " 
appended  to  Tome  II  of  the  Nouv.  Prin.,  pp.  379  ff.     Here  is  found  an  inter- 
esting criticism  of    an  article   by  M'Culloch  which   admirably   illustrates 
Sismondi's  method. 

2  E.g.  in  discussion  in  Nouv.  Prin.,  I,  pp.  118-119. 

1  While  they,  of  course,  are  open  to  criticism  for  not  keeping  their  as- 
sumptions duly  to  the  front  and  limiting  their  conclusions  duly. 


SISMONDI:  THE  EMPHASIS   OF   CONSUMPTION        309 

and  friction,  often  involved  in  bringing  supply  and  demand  into 
equilibrium.  To  this  element  of  friction  Sismondi  constantly 
points.  And  not  only  is  there  the  immediate  lack  of  equilibrium ; 
it  is  increased  and  its  evils  heightened  by  the  fact  that  laborers 
frequently  must  remain  at  work  though  wages  are  lowered  and 
hours  increased.1  The  force  of  habit  and  the  technical  difficulties 
of  transferring  fixed  capital  are  brought  into  clear  relief. 

Sismondi  attacked  the  prevailing  idea  that  machinery  is  an 
unmixed  good.  Here  again,  though  he  goes  too  far,  his  criticism 
has  its  value.  His  real  point  is  that  the  introduction  of  machin- 
ery is  an  unmixed  benefit  only  when  preceded  by  an  increase  in 
revenue  and  demand  which  would  allow  the  employment  else- 
where of  the  labor  which  is  displaced ;  otherwise  there  is  suffer- 
ing through  lower  wages  and  unemployment.  All  of  which,  for  a 
given  time,  is  frequently  too  true.  Sismondi,  however,  would 
have  restricted  the  adoption  of  machinery ;  while  the  economists, 
when  they  did  not  treat  the  question  in  such  an  abstract  and 
general  manner  as  to  sail  above  it,  would  have  resorted  to  some 
system  of  relief  pending  new  adjustments. 

4.  Population.  —  As  already  Indicated,  Sismondi  deemed 
the  end  of  political  economy  to  be  the  discovery  of  that 
proportion  between  population  and  wealth  which  would 
assure  the  highest  well-being.  He  gives  much  attention, 
therefore,  to  population.2  His  thesis  on  this  subject  is  that 
while  sympathy  or  the  affections  urge  to  marriage,  egoism 
or  calculation  deter,  and  through  the  interplay  of  these 
forces  population  would  naturally  be  regulated  according  to 
revenue.3  But  the  evil  situation  arises  in  which  the  births  of  a 
nation  exceed  its  revenues,  and  with  overproduction,  unequal 
property,  and  exploitation  by  the  rich,  revenue  is  encroached 
upon  and  wages  are  reduced.  One  of  the  points  that  Sismondi 
particularly  mentions  in  his  preface  is  the  gloomy  idea  that 
the  natural  limits  to  population  are  always  respected  by  those 
who  have,  while  they  are  exceeded  by  those  who  have  not. 

1  Nouv.  Prin.,  I,  333 ;  and  II,  379  ff. 

2  Ibid.,  II,  Liv.  7 

1  See  ibid.,  II,  pp.  253-255. 


310  ECONOMIC  THOUGHT 

Sismondi  believes  Malthus  to  be  quite  mistaken  in  his  ideas  on 
the  natural  limits  of  population.  Population  is  not  limited  by 
the  subsistence  which  land  can  produce,  but  is  checked  before 
such  a  limit  can  be  reached.  In  opposing  the  ideas  of  a  geo- 
metric and  an  arithmetic  progression,  Malthus  was  contrasting  a 
mere  potentiality  with  an  actuality.  Nay,  rather  with  less  than 
the  actuality,  for  the  increase  of  plant  and  animal  life  is  more 
rapid  than  that  of  man.  And  history  is  appealed  to  for  the  pur- 
pose of  showing  that  nomadic  peoples  have  restrained  population 
while  their  land  would  have  supported  a  much  more  numerous 
people.1 

5.  Reforms  advocated.  —  Sismondi  recognizes  a  conflict    be- 
tween  public    and    private    interests,  and    so    logically  calls 
upon  the  state  to  interfere:    first   to    adjust    production   to 
revenue  or  demand  (population),  and  secondly  to  apply  cer- 
tain particular  remedies  directly.     Thus  he  urges  the  restric- 
tion of  inventions,  and  advocates  steps  toward  giving  some 
property  to  labor.     In  agriculture  small  proprietors  are  favored ; 
in  manufactures,  more  small-scale  industry  and  increased  re- 
sponsibility on  the  part  of  the  employer.2    Such  responsibility 
as  for  sickness,  accident,  old  age,  would  have  given  the  laborer 
rights  akin  to  those  of  property.    In  addition  to  all  this,  there  are 
many  vague  appeals  to  statesmen  to  try  to  stay  the  struggle  for 
increased  industrial  production.     Under  the  head  of  more  direct 
and  less  general  reforms  would  fall  his  advocacy  of  regulation  of 
hours,  and  of  child  labor ;  and  of  legislation  giving  laborers  the 
right  to  combine.3    In  these  matters  Sismondi's  importance  as  an 
early  thinker  in  the  field  of  social  reform  will  be  recognized. 

6.  Exploitation  of  Labor,  and  Socialism.  —  Though  he  does 
not    draw  Socialistic  conclusions,  Sismondi's  argument  often 
runs  like  that  of  Marx  himself,  and  his  thought  concerning 

1  Of  course  this  fact  is  not  necessarily  in  conflict  with  Malthus'  .theory, 
even  as  it  is  stated  by  Sismondi,  for  it  may  be  subsistence  which  holds  that 
population  in  check,  whether  gained  by  grazing  or  agriculture.  In  any  case, 
the  moral  restraint  idea  is  overlooked.  For  Malthus'  reply,  see  his  Pol. 
Econ.,  ad  ed.,  p.  366,  note. 

8  E.g.  Nouv.  Prin.,  II,  661.  3  E.g.  ibid.,  II,  p.  451. 


SISMONDI:  THE  EMPHASIS  OF  CONSUMPTION      311 

the  exploitation  of  labor  undoubtedly  influenced  Socialistic 
criticism.  Generally,  though  not  with  entire  consistency, 
he  states  that  labor  is  the  source  of  wealth.  The  "  rich  " 
can  only  obtain  the  products  of  others'  labor  through  exchange. 
If  they  gave  of  their  capital,  they  would  become  impoverished. 
But  this  is  not  necessary,  for  in  the  existing  social  order  they 
make  their  property  produce  through  the  labor  of  others.  In  so 
many  words  he  says  that  capitalists  exploit  laborers,  gaining  not 
because  they  produce  a  surplus  above  costs,  but  because  they  pay 
less  than  cost.1  At  one  point  the  word  "  spoliation  "  is  used.2 
Luxury  is  possible  only  where  it  is  maintained  with  the  labor 
of  others ;  unremitting  toil,  only  where  it  secures  a  bare  subsist- 
ence, —  this  is  a  corollary  of  his  ideas  on  overproduction. 

Competition  is  criticized  as  leading  to  overwork  and  the 
employment  of  women.  Government  intervention  is  advo- 
cated. Yet  Sismondi  stops  short  of  Socialism,  and  criticizes 
Owen  and  others. 

Method.  —  A  marked  characteristic  of  Sismondi  was  his 
concrete  and  historical  method.  Smith  and  Malthus  he  praises 
for  their  study  of  history  and  facts ;  while  he  constantly  criti- 
cizes Ricardo  for  his  abstraction  and  hasty  generalization,  and 
takes  Say  and  M'Culloch  to  task  on  the  same  ground.  Indeed, 
Sismondi  was  as  much  an  historian  as  an  economist.  He  was  fully 
aware  of  the  necessity  for  taking  time  and  place  and  history  into 
consideration.  His  best  work  lies  in  his  concrete  study  of  eco- 
nomic phenomena,  and  when  he  takes  to  abstract  analysis  he  not 
infrequently  falls  into  inconsistencies  that  confuse  the  reader. 

No  evidence  has  been  found  that  the  German  historical  school 
acknowledges  a  debt  to  Sismondi,  yet  it  is  probable  that  he  was 
well  known  to  the  leaders  of  that  school,  —  Roscher  gives  him 
favorable  comment  in  his  History  of  Political  Economy  in  Ger- 
many, —  and  some  small  degree  of  influence  seems  not  unlikely. 

Influence.  —  Aside  from  this,  Sismondi's  influence  was  chiefly 
felt  by  the  Socialists.  Indeed,  he  has  sometimes  been  wrongly 
classed  as  one.  Though  his  writing  was  thus  effective  along  a 

1  Ibid.,  I,  92.  *  EtUdes  I,  274-275. 


312 


ECONOMIC  THOUGHT 


line  which  he  would  not  himself  have  followed,  he  was  almost  uni- 
versally rejected  by  economists.  This  was  no  doubt  due  to  the 
extremely  reactionary  character  of  his  thought.  He  called  for 
government  intervention  in  an  age  of  laisser  faire.  He  was  a 
pessimist  in  a  land  where  optimism  reigned.  He  opposed  the 
very  spirit  of  the  dominant  economics  in  his  criticism  of  chretna- 
listique,  competition,  etc.  And  his  notions  concerning  over- 
production and  machinery  were  not  only  largely  erroneous,  but 
were  peculiarly  offensive  to  the  "  orthodox  "  English  Classicist. 

J.  S.  Mill  read  Sismondi,  and  his  more  humanitarian  spirit  and 
advocacy  of  government  intervention,  even  passing  over  to  So- 
cialistic views  in  his  later  years,  must  have  made  him  a  sympa- 
thetic reader.  But  to  what  extent  he  drew  from  Sismondi  cannot 
be  stated.  Fix,  Droz  (Economic Politique,  1829),  and  Villeneuve- 
Bargemont  (Economic  Politique  Chr&tienne,  1834)  might  be 
classed  as  followers;  and  Buret  appears  to  have  been  a  sole 
disciple.1 

1  La  Misere  des  Classes  Laborieuses  en  France  et  en  Angleterre,  1841.  See 
Gide-Rist,  Hist,  des  Doctrines  Economiques,  p.  228. 


b.  NATIONALISTIC   CRITICS 

CHAPTER  XX 
MULLER,  LIST,  AND  CAREY:  THE  EARLY  NATIONALISTS 

THE  Nationalists,  the  criticism  of  whose  thought  comes  next, 
comprise  a  group  of  politico-economic  writers  of  the  early  years 
of  the  nineteenth  century,  who  attacked  the  cosmopolitan,  free- 
trade  doctrines  of  the  Classicists.  None  of  them  were  English. 
It  is  natural  that  this  serious  outbreak  against  the  authority  of 
Adam  Smith  should  take  place  outside  of  Great  Britain.  Written 
for  his  own  country  and  based  upon  the  national  life  of  his  tune, 
it  was  to  be  expected  that  the  Wealth  of  Nations  would  answer 
the  needs  of  England  longer  than  those  of  other  countries.  It  is 
natural,  moreover,  that  what  was  perhaps  the  most  thorough- 
going revolt  against  its  teachings  this  side  of  Socialism  should 
have  occurred  in  a  land  whose  development  and  manner  of 
production  differed  essentially  from  those  of  Smith's  native  coun- 
try. Germany,  accordingly,  has  been  the  one  among  the  great 
civilized  nations  to  lead  the  rebellion  against  English  political 
economy.  It  was  felt  that  it  did  not  meet  her  requirements,  and 
from  the  earliest  years  of  the  nineteenth  century  her  economists 
took  a  more  nationalistic  stand.  Sartorius  (1806),  Jakob  (1809), 
Rau  (1826-1832),  and  Hermann  (1832)  may  be  mentioned  as  to 
a  considerable  extent  recognizing  national  bounds  in  theory, 
and  making  some  place  for  tariffs.  Excepting  Hermann,  how- 
ever, these  writers  were  essentially  followers  of  Adam  Smith, 
and  nationalism  was  not  the  heart  of  their  thought. 

Adam  Miiller.  —  The  first  to  express  this  feeling  of  national- 
istic revolt  so  as  to  attract  considerable  attention  were  the  po- 
litical economists  called,  in  Germany,  Romanticists,  of  whom  the 
leading  representative  was  Adam  Heinrich  Miiller,  and  the  two 

313 


ECONOMIC  THOUGHT 

other  most  prominent  adherents,  Friedrich  Gentz  and  Karl  Lud- 
wig  von  Haller.1  Gentz  translated  Burke's  Reflections  on  the 
French  Revolution,  which  work  doubtless  had  its  effect  upon 
Miiller.  Adam  Miiller  was  born  June  3, 1779,  in  Berlin.  In  1799 
he  went  to  the  University  of  Gottingen,  where  he  studied  law. 
Upon  his  return  to  Berlin,  he  received  a  government  appoint- 
ment. Later  he  held  various  positions  in  Austria  in  what  we 
would  call  the  treasury  department.  His  death  occurred  in 
1829.  While  in  Vienna,  in  1805,  he  became  a  Roman  Catholic, 
on  which  account  he  has  been  called  a  notorious  apostate.  Soon 
after  this  he  went  to  Dresden  and  delivered  lectures,  which  were 
published  in  that  place  in  1806  with  the  title,  Vorlesungen  ilber 
die  Deutsche  Wissenschaft  und  Literatur  (Lectures  on  German 
Science  and  Literature).  A  second  edition  appeared  in  1807. 
In  these  lectures  he  advocated  what  is  called  the  Schlegel'sche 
Romantik  —  the  romanticism  of  Schlegel. 

His  writings  are  often  mystical,  Catholic,  and  reactionary. 
Indeed,  they  represent  the  reaction  which  followed  the  French 
Revolution  and  the  Napoleonic  wars.2 

A  leading  thought  in  Miiller's  reaction  against  Adam  Smith  is 
the  necessity  of  abandoning  his  cosmopolitanism  and  of  founding 
a  national  political  economy.  Believing  in  the  utility  of  a  strong 
national  feeling,  he  holds  that  opposition  and  contest  among  dif- 
ferent countries  are  desirable.  Protection  to  home  industry, 

1  Justus  Moser  preceded  these  men  with  similar  ideas.     But  his  work  was 
not  in  criticism  of  Adam  Smith.     He  was,  however,  opposed  to  the  liberal, 
rationalistic  spirit  which  led  up  to  Smith's  work.     He  was  reactionary, 
favoring  medieval  institutions.     See  Roscher,  Gesch.  d.  Nat.  Oek.  in  Deutsch- 
land. 

2  The  most  prominent  are :  — 

Von  der  Idee  des  Staats,  Dresden,  1809. 

Die  Elemente  der  Staatskunst  (The  Elements  of  Politics),  Berlin,  1809. 

Die  Theorie  der  Staatshaushaltung  (The  Management  of  State  Finances), 
Vienna,  1812. 

Versuch  einer  neuen  Theorie  des  Geldes  (An  Essay  on  a  New  Theory  of 
Money),  Leipzig,  1816. 

Von  der  N  otwendigkeit  einer  theologischen  Grundlage  der  gesamten  Staats- 
wissenschaften  (On  the  Necessity  of  a  Theological  Foundation  for  all  the 
Political  Sciences),  Leipzig,  1819. 


THE  EARLY  NATIONALISTS  315 

and  even  prohibition  of  certain  exports  and  imports,  are  defended 
on  the  ground  that  they  stimulate  national  feeling  and  give  na- 
tional character  to  the  wealth  of  a  people.1  For  the  same 
reason,  Miiller  advocates  the  use  of  paper  money ;  the  precious 
metals  are  too  cosmopolitan  for  him.  And  a  further  argument  in 
favor  of  paper  money  is  that  it  furnishes  the  means  of  avoiding 
national  debts  which  tend  to  divide  people  into  two  antagonistic 
parties,  those  who  possess  wealth  and  those  who  lack  it.2 

In  his  system  the  state  is  viewed  hi  a  very  different  light  from 
that  in  which  it  has  been  regarded  by  any  writer  considered  thus 
far.  To  him  government,  in  itself,  is  a  good  and  not  an  evil.  In 
opposition  to  the  atomistic  individualism  of  Adam  Smith,  he 
emphasizes  the  organic  character  of  the  state.  He  even  values 
war,  because  it  brings  into  prominence  the  idea  of  the  state 
and  society  as  a  whole.  Thus  the  welfare  of  others  becomes  an 
object,  and  individual  selfishness  occupies  a  less  prominent  posi- 
tion than  in  times  of  peace.  But,  while  Miiller  desired  great 
centralization  and  solidarity,  he  did  not  wish  to  extinguish  utterly 
individual  freedom :  the  individual  was  not  to  be  lost,  but  was  to 
attain  his  best  development  as  a  closely-knit  member  of  the  social 
organism. 

It  is,  moreover,  the  state  which  gives  security  to  property. 
It  is  impossible  to  guarantee  that  one's  wealth  shall  be  inviolable 
save  through  the  state.  Man  cannot  be  thought  of  as  existing 
in  any  tolerable  situation  outside  of  the  state.  It  is  to  the  state 
that  we  must  ascribe  the  continuity  of  society  and  of  national 
economic  life.  Progress  and  accumulation  are  thus  possible. 

All  this  meant  a  different  economic  viewpoint.  Take  value 
theory,  for  example.  Miiller  accuses  Smith  of  overemphasizing 
exchange  value  or  the  individual  valuation.  All  things,  he  held, 
have  a  twofold  usefulness :  one  for  society ;  one  for  the  individ- 
ual. National  power  (Nationalkraft),  however,  is  the  funda- 
mental thing,  all  individual  values  being  gained  in  and  through 

1  Miiller  comes  near  to  Mercantilist  doctrines,  and  is  classed  by  Kautz 
as  "Mercantilist-conservative."     In  this  he  differs  from  List.     It  would 
be  an  error  to  class  him  as  a  Mercantilist,  however. 

2  See  Stephinger,  Die  Geldlehre  Adam  Mailer's,  Stuttgart,  1909. 


316  ECONOMIC  THOUGHT 

this  power,  and  existing  subject  to  the  effects  of  world  and  na- 
tional movements. 

"  The  problem  of  permanence  is  the  most  important  of  all 
political  problems."  On  this  account,  Muller  values  the  heredi- 
tary nobility:  it  connects  the  past  with  the  present.  Adam 
Muller  was  a  warm  partisan  and  admirer  of  the  Middle  Ages, 
and  longed  for  a  return  to  them.  The  world,  he  thought,  had 
been  led  astray  by  gold,  Roman  institutions,  and  the  en- 
joyment of  material  luxuries.  Change  he  hated.  The  per- 
manence of  institutions  was  dear  to  him  above  all  things. 
He  thought  God  had  ordained  that  agricultural  laborers  should 
be  bound  to  the  soil.  Feudal  burdens  and  institutions  of  all 
kinds,  including  the  gilds  and  corporations  of  the  Middle 
Ages,  seemed  admirable  to  him  as  binding  men  together  and 
making  them  feel  their  unity.  Such  arrangements  were  better 
for  the  poorer  classes,  since  our  modern  money  system  had  made 
slaves  of  them. 

Roscher  considers  that  one  of  Muller's  best  characteristics 
was  the  earnestness  with  which  he  fought  the  tendency  of  modern 
political  economists  to  overvalue  economic  goods  and  material 
enjoyment.  He  thought  that  the  farmer  should  not  labor  ex- 
clusively for  the  promotion  of  his  own  material  welfare,  as  Smith 
had  represented  him  as  doing ;  but,  first  of  all,  out  of  love  to  God, 
each  one  should  consider  himself  a  steward,  administering  his 
affairs  for  Him  who  committed  the  stewardship  unto  him. 

It  was  in  accord  with  this  general  conception  that  Muller  dis- 
tinguished a  geistiges  Kapital  (spiritual  capital),  which  earlier 
generations  hand  down  to  posterity  in  the  shape  of  a  mass  of 
experiences  and  ideas.1 

Although  Muller  accused  Smith  of  absolutism  in  neglecting  the 
differences  of  place,  his  own  work  is  not  entirely  exempt  from  this 
error.  He  did  not  recognize  development  in  time.  He  regarded 
the  Middle  Ages  as  representing  the  normal  condition  of  eco- 
nomic life  for  all  times.  He  did  not  perceive  that  civilization  had 
outgrown  that  period,  but  thought  that  his  own  time  was  simply 
an  unhappy  transitional  state,  and  that  the  following  generation 

1  Criticized  by  Hermann,  Staatsivirthschafttiche  Untersuchungen,  p.  54. 


THE  EARLY  NATIONALISTS  317 

would  return  to  past  institutions  with  a  consciousness  of  their 
superiority.1  Miiller  may  also  be  criticized  for  overlooking  the 
part  played  by  individuals  and  for  recognizing  them  only  as  they 
work  for  the  state.2 

While  opposing  Smith,  Miiller  did  not  hesitate  to  express  his 
admiration  for  him.  He  called  Adam  Smith  "  the  incomparable 
scholar  and  the  greatest  of  politico-economic  writers  of  all  times."3 
But  Miiller  held  that  Smith  in  writing  his  Wealth  oj  Nations, 
presupposed  as  a  basis  for  his  economic  system  a  condition  of 
affairs  and  an  historical  growth  such  as  had  taken  place  in  Eng- 
land. This  is  true.  Here,  as  in  many  other  places,  Miiller 
corrected  the  one-sidedness  of  Smith.  He  did  this  again  in  calling 
attention  to  the  evil  effects  of  a  division  of  labor,  or,  as  he  put  it, 
"  to  the  wicked  tendency  of  the  division  of  labor  "  (die  lasterhafte 
Tendenz  der  Arbeitstheilung) . 

Friedrich  List.  —  Friedrich  List  was  born  in  Reutlingen, 
Wiirtemberg,  in  1789.  He  entered  the  civil  service  at  an  early 
age,  and  by  diligence  and  ability  soon  attained  a  very  respect- 
able position.  He  heard  lectures  in  Tubingen,  and  in  1818  was 
made  professor  of  political  science  in  the  university  at  that 
place.  He  used  his  professorship  as  a  means  of  attacking  the 
bureaucratic  routine  of  the  civil  service  in  Wiirtemberg,  and 
at  the  same  time  advocated  in  the  press  the  cause  of  constitu- 
tional monarchy.  List  opposed  the  union  of  the  government 
of  Wiirtemberg  with  the  reactionary  elements  of  the  parlia- 
ment, and  was  called  to  account  by  the  government  for  having 
written  opposition  articles,  whereupon  he  resigned  his  professor- 
ship in  1819.  He  was  then  made  counsel  of  the  German 
Commercial  and  Industrial  Union  (Deutscher  Handels-  und 
Gewerbeverein),  which  he  had  helped  to  found.  One  object 
of  this  union  was  to  abolish  duties  on  goods  passing  from  one 
German  state  to  another  and  to  replace  them  by  duties  on  the 
frontiers  of  Germany. 

1  Cf.  Knies,  Die  Politische  Oekonomie  vom  Standpunkte  der  geschichllichen 
Methode,  §  23. 

2  Hildebrand,  Die  Nationalokonomie  der  Gegenwart  und  Zukunft,  I,  Chap. 
II.  »  Cf.  Roscher's  Gesch.  d.  Nat.  Oek.  in  Deutschland,  §  163. 


318  ECONOMIC  THOUGHT 

Reutlingen  sent  him  to  parliament  as  its  representative  in 
1820.  At  the  time,  he  made  a  speech  in  Reutlingen,  advocating 
reforms  which  were  then  considered  very  radical.  Among  other 
things,  he  wished  to  do  away  with  tolls  on  roads,  tithes,  the 
greater  part  of  the  state  industries,  feudal  burdens  resting  on 
land,  and  excise  duties ;  and  sought  to  introduce  publicity  and 
trial  by  jury  into  the  judicial  administration.  He  also  favored  a 
decided  reduction  in  the  number  of  civil  service  officers,  the  sale 
of  public  domains,  and  a  single  direct  income  tax  to  meet  the 
expenses  of  government.1  This  displeased  the  powers  in  author- 
ity, and  a  petition  which  he  directed  to  the  estates  of  the  realm, 
in  which  he  pointed  out  abuses  in  the  administration  and  in  the 
courts,  met  with  still  less  favor.  He  was  expelled  from  parlia- 
ment, and  sentenced  to  ten  months'  imprisonment.  The  govern- 
ment of  Wiirtemberg  finally  agreed  to  give  him  his  liberty  on 
condition  that  he  should  leave  the  country.  He  consented  to 
this,  and  emigrated  to  America. 

He  bought  a  farm  near  Harrisburg  in  Pennsylvania,  but  later 
became  a  successful  editor  and  a  speculator  in  coal  mines  and 
railways.  In  Reading,  he  published  the  National  Zeitung, 
and  wrote  a  number  of  articles  for  it  on  free  trade,  which,  in  1827, 
were  published  in  the  form  of  a  pamphlet  entitled  Outlines  of 
A  merican  Political  Economy.  This  was  done  at  the  request  of  the 
Pennsylvania  Society  for  the  Advancement  of  Manufacture  and 
Arts.  These  articles  contained  the  leading  ideas  of  his  great 
work,  National  System  of  Political  Economy,  published  fourteen 
years  later.  List's  residence  in  America  deeply  colored  his  eco- 
nomic views.  Some  new  ideas  he  gathered  from  the  writings  of 
Alexander  Hamilton.  But  chiefly  he  profited  by  observation  of 
the  young  and  rapidly  progressing  economy  which  surrounded 
him.  "  There  only,"  he  writes,  "  have  I  obtained  a  clear  idea  of 
the  gradual  development  of  the  economy  of  a  people."  "  There 
the  contrasts  between  agricultural  and  manufacturing  countries 
are  exemplified  in  the  most  decided  manner,  and  cause  the  most 
disastrous  revulsions."  2 

1  See  Roscher,  Gesch.  der  Nat.  Oek.  in  Deutsch.,  §  970. 

2  Preface  to  National  System  of  Political  Economy, 


THE  EARLY  NATIONALISTS  319 

In  1832  he  went  to  Germany  as  United  States  consul  in 
Leipzig,  and,  though  very  ill-received  in  his  native  land,  never 
returned  to  America. 

His  first  literary  labor  after  this  was  his  work  on  the  Rotteck- 
Welckersche  Staatslexicon,  an  organ  of  South  German  liberals. 
He  also  began  at  once  an  agitation  for  a  system  of  railways  in 
Germany.  With  this  in  view,  he  was  a  frequent  contributor  to 
the  press,  and  wrote  a  work  called  Ueber  ein  sdchsisches  Eisenbahn- 
system  als  Grundlage  eines  allgemeinen  deutschen  Eisenbahnsys- 
tems  (A  Saxon  Railway  System  as  a  Foundation  of  a  universal 
German  Railway  System),  published  in  Leipzig  in  1833.  About 
this  time  he  wrote  an  essay  for  the  French  Academy  on  a  subject 
which  they  had  assigned :  "  What  must  be  considered  by  a 
Nation  desirous  of  introducing  Free  Trade  in  order  in  the  most 
just  manner  to  reconcile  the  interests  of  consumers  and  pro- 
ducers ?  "  List's  essay  did  not  receive  the  prize,  but  was  declared 
by  the  Academy  to  be  surtout  remarquable.  Finally,  in  1841, 
he  published  the  first  volume  of  his  great  work,  National  System 
of  Political  Economy.  It  was  the  design  of  List  to  complete  the 
work  in  three  volumes,  but  the  first  alone  was  finished.1  It 
treated  of  international  commerce,  the  functions  of  government 
in  matters  of  trade,  and  the  German  customs  union. 

In  his  National  System,  List  considers  chiefly  that  part  of  the 
science  which  deals  with  international  commerce.  He  has  one 
distinct  end  immediately  in  view,  which  is  to  overthrow  the  free-trade 
principles  of  the  "  School,"  as  he  calls  Adam  Smith,  Jean-Baptiste 
Say,  and  their  followers;  while  back  of  this  lay  his  desire  to  show 
the  nations  how  they  might  overthrow  England's  commercial 

1  His  collected  writings  were  published  together  with  a  biography  by 
Hausser  in  three  volumes  in  Stuttgart  in  1850  and  1851. 

The  National  System  of  Political  Economy  has  been  translated  into  English 
and  published  in  Philadelphia  by  J.  B.  Lippincott.  This  translation,  made 
by  G.  A.  Matile,  contains  a  preliminary  essay  on  the  history  of  political 
economy  and  notes  on  the  text  by  Stephen  Colwell  of  Philadelphia,  together 
with  the  notes  of  the  French  translation  by  Henri  Richelot.  (The  note 
references  are  to  this  translation  and  the  quotations  are  taken  from  it.) 
There  is  a  later  translation  (1904,  Longmans,  Green,  and  Co.)  with  a 
good  introductory  essay  by  Professor  J.  S.  Nicholson. 


320 


ECONOMIC  THOUGHT 


supremacy.  He  takes  up  the  subject  of  international  commerce, 
and  makes  his  whole  work  center  about  that,  because  of  all  the 
questions  of  political  economy  he  considers  it  to  have  the  pre- 
ponderant interest.  The  prosperity  and  even  the  existence  of 
nations  may  be  sacrificed  by  a  false  commercial  policy.  At 
present,  he  holds,  it  is  of  particular  importance  to  devote  one's 
attention  to  this  matter,  because  the  rapid  progress  of  the  era 
renders  it  more  dangerous  than  ever  before  to  take  any  false  posi- 
tion. In  no  previous  period  had  the  distance  between  stationary 
and  advancing  peoples  increased  so  rapidly.  In  past  times  it  was 
a  work  of  centuries  for  one  nation  to  obtain  a  monopoly  of 
woolen  manufactures,  while  in  his  own  time,  he  says,  it  required 
but  ten  years  for  one  people  to  obtain  control  of  the  manufacture 
of  cotton,  and  the  start  of  a  few  years  might  enable  that  most 
dangerous  country,  England,  to  monopolize  the  flax  industry  of 
Europe. 

List  begins  the  Introduction  to  his  work  by  calling  attention 
to  the  difference  between  science  and  practice  in  the  questions  of 
political  economy.  He  maintains  that  both  sides  have  erred, 
though  the  chief  error  appears  to  be  on  the  side  of  the  men  of 
theory.  The  men  of  the  School,  the  followers  of  Adam  Smith, 
have  looked  away  from  the  world  as  it  is  and  built  upon  supposi- 
tions which  do  not  exist,  never  have  existed,  and  whose  future 
existence  is  only  problematical.  They  have  regarded  the  whole 
world  as  living  in  peace  and  harmony.  The  differences  of  nation- 
ality they  have  overlooked.1  The  adherents  of  Adam  Smith  have 
in  fact  established  what  List  calls  a  cosmopolite  (cosmopolitan) 
or  universal  economy.  Adam  Smith  followed  his  master,  Ques- 
nay,  in  calling  his  book  the  Wealth  of  Nations,  —  of  nations  in 
general,  or  mankind. 

Now  List  does  not  object  to  inquiries  of  this  kind,  if  it  be  under- 
stood that  the  principles  deduced  apply  to  an  imaginary  and  not  a 
real  state  of  affairs.  He  even  admits  that  the  deductions  drawn 
by  Smith  and  Say  are  correct, "  if  we  assume  with  this  School  an 
universal  association  or  federation  of  all  nations  as  a  guarantee  of 
perpetual  peace."  He  does  maintain,  however,  that  matters 
1  National  System  of  Political  Economy,  p.  193. 


THE  EARLY  NATIONALISTS  321 

ought  to  be  considered  as  they  are,  and  not  as  they  may  become  in 
a  distant  millennium.  Nations  do  exist,  they  do  go  to  war  with 
one  another,  they  do  take  advantage  of  one  another  when  they  can. 
The  basis  of  the  present  life  of  the  world  is  national  life ;  the  na- 
tion comes  between  the  individual  and  humanity ;  there  should 
be,  then,  a  national  political  economy  as  well  as  a  cosmo- 
politan. Accordingly,  List  attempts  to  take  a  realistic  and 
historical  view  of  political  economy.  He  wishes  to  build  upon 
the  world's  experience,  to  place  himself  upon  the  same  ground  as 
men  of  practice,  only  enlarging  the  view  they  take  by  considering 
with  the  aid  of  history, policy, and  philosophy"  the  exigencies  of 
the  future  and  the  higher  interests  of  the  whole  human  race." 
So,  immediately  after  his  introduction,  he  begins  a  review  of  the 
history  of  free  trade  and  protection  in  the  leading  modern  na- 
tions. His  work  might,  indeed,  have  been  entitled  the  History  of 
the  Policy  of  Modern  Nations  in  Respect  to  International  Com- 
merce. 

He  discovers  that  the  economic  life  of  nations,  save  those 
lying  in  the  tropics,  may  be  divided  into  five  periods:  first, 
there  is  the  hunting  or  fishing  or  savage  stage ;  this  is  followed  by 
the  pastoral  stage ;  people  continue  to  wander  for  a  time,  but  are 
finally  compelled  by  external  pressure  to  settle  permanently  some- 
where and  gain  a  livelihood  by  agriculture,  thus  entering  the 
agricultural  stage ;  afterwards  manufactures  are  introduced,  this 
constituting  the  agricultural  and  manufacturing  stage ;  finally, 
commerce  is  added  and  the  fifth  stage,  the  agricultural,  manu- 
facturing, and  commercial  stage,  is  attained.  As  these  stages 
represent  a  continual  advancement  in  material  life,  the  proper 
office  of  legislation  is  to  aid  in  the  transition  from  a  lower  to  a 
higher  stage. 

Different  measures  are  required  in  different  periods.  In  the 
lowest  stage,  that  of  hunters,  free  trade  should  be  encouraged  as 
the  means  of  developing  higher  wants  in  the  people  and  thus 
leading  them  to  a  more  advanced  economic  stage.  As  their 
desires  increased,  they  would  take  up  agriculture  more  extensively 
and  improve  their  cultivation  in  order  to  obtain  raw  material 
to  exchange  for  the  manufactured  articles  of  foreign  countries. 


322  ECONOMIC  THOUGHT 

Presently,  they  would  manifest  a  desire  to  manufacture  these 
articles  for  themselves,  and  then  it  would  be  time  for  government 
to  introduce  protective  measures.  Only  in  this  manner  could 
they  ever  enjoy  the  advantages  of  manufactures,  even  if  they 
possessed  natural  facilities  for  them,  because  older  nations  with 
more  capital  would  otherwise  strangle  industries  in  their  infancy. 
They  could  sell  even  below  cost  for  a  time  long  enough  to  ruin  the 
weak  establishments  of  the  new  country.  Navigation  and 
manufactures  should  be  protected,  until  the  country  becomes 
strong  enough  to  compete  with  any  other  country,  when  free 
trade  should  again  be  introduced  to  stimulate  manufacturer 
and  commerce  by  international  competition. 

Thus  government  activity  is  given  a  large  part  in  List's 
teaching. 

The  countries  of  the  torrid  zone,  he  held,  had  not  the  gifts  which 
fitted  them  ever  to  become  manufacturing  nations.  Nature 
had  failed  to  bestow  upon  the  people  of  the  tropics  the  requisite 
energy.  They  possessed,  nevertheless,  a  natural  monopoly 
of  many  products  greatly  desired  by  northern  countries,  and 
their  only  road  to  wealth  lay  in  continuing  to  exchange  agri- 
cultural products  for  manufactured  commodities.  Northern 
nations  were  to  carry  on  trade  freely  with  the  countries  of  the 
tropics,  but  with  one  another  they  ought  all  to  adopt  protective 
measures. 

No  high  state  of  civilization  could  be  attained  without  manu- 
factures, an  exclusively  agricultural  people  being  necessarily  rude 
and  barbarous.  Agriculture  and  manufactures  should  be  side 
by  side  to  stimulate  each  other  and  to  save  the  cost  of  transporta- 
tion. When  they  are  together  under  the  same  political  power, 
they  are  disturbed  by  no  war;  they  live  in  perpetual  peace. 

Besides  his  attacks  on  the  cosmopolitanism  and  free-trade  doc- 
trines of  the  School,  —  the  latter  being  assailed  through  an  exami- 
nation of  England's  own  growth  and  the  history  of  the  United 
States,  — List  also  criticized  the  principle  of  division  of  a  labor 
and  the  emphasis  laid  on  exchange  value. 

The  true  principle  of  the  division  of  labor  is  the  same  thing  as 
association  of  labor  or  cooperation.  If  a  dozen  men  are  en- 


THE  EARLY  NATIONALISTS  323 

gaged  in  work  on  one  pair  of  shoes,  the  labor  is  divided,  it  is  true, 
but  the  results  of  that  labor  are  united  in  the  one  pair  of  shoes. 
The  men  are  all  working  together.  Adam  Smith  gives  in  his 
Wealth  of  Nations  an  example  of  division  of  labor  in  the  manu- 
facture of  pins,  which  has  become  celebrated.  The  labor  of  a 
few  men  united  or  divided  —  it  might  be  put  either  way  —  in 
this  manner  accomplishes  many  times  more  than  it  would  if 
they  worked  separately,  each  for  himself.  But  suppose  that, 
instead  of  laboring  in  the  same  factory,  or  at  any  rate  near  to- 
gether, the  men  who  made  the  heads  and  those  who  made  the 
points  lived  in  remote  countries,  would  it  then  work  so  well? 
Might  not  the  men  who  made  the  heads  manufacture  too  many 
in  expectation  of  a  greater  number  of  points  than  were  actually 
imported?  Might  not,  in  fact,  their  entire  labor  be  rendered 
useless  by  a  war  which  would  cut  off  the  supply  of  points 
altogether  ?  Now  if  this  process  of  division  of  labor  be  extended 
between  different  countries,  might  not  war  or  disasters  in  one 
country  produce  a  general  commercial  crash  ? 

Perhaps  List  is  in  no  place  more  original  or  successful  than  in 
the  exposition  of  his  theory  of  productive  forces  and  immaterial 
capital.1  As  at  other  points,  it  corrects  the  one-sidedness  of 
Smith,  who  had  considered  value  in  exchange  with  little  reference 
to  productive  power.  He  supposes  two  fathers,  farmers,  each 
having  five  sons.  Each  receives  an  income  of  $1000  in  excess  of 
his  necessary  expenses.  The  one  saves  it  and  keeps  his  sons  at 
manual  labor.  The  other  spends  it  in  educating  three  sons  for 
some  profession  and  in  training  the  other  two  to  become  skilled 
agriculturists.  Both  fathers  die.  The  first  is  richer  in  exchange 
values.  He  has  left  more  property.  His  possessions  are  divided 
among  five  sons.  In  the  second  case  the  productive  powers  are 
greater.  The  farm  is  divided  between  the  two  sons,  who  have 
become  so  skillful  that  each  half  yields  its  possessor  as  much  per- 
haps as  the  whole  did  formerly.  The  other  three  sons  have  been 
so  trained  that  they  are  able  to  take  care  of  themselves.  In  the 
one  case  there  is  ignorance  and  increasing  poverty  as  the  estate 

1  Cf.  Hermann's  criticism  of  this  idea  as  to  personal  elements,  below, 
P-  43o. 


324  ECONOMIC  THOUGHT 

becomes  more  and  more  divided ;  in  the  other,  new  talents  and 
aptitudes  for  the  production  of  wealth  are  developed,  and  these 
go  on  increasing  from  father  to  son  to  the  benefit  of  society.  The 
mere  accumulation  of  exchange  values,  then,  is  not  all-important, 
but  is  surpassed  by  the  increase  of  productive  power:  "  The 
power  of  producing  -wealth  is  therefore  infinitely  more  important 
than  wealth  itself;  it  insures  not  only  the  possession  and  the 
increase  of  what  has  been  gained,  but  also  the  replacement  of 
what  has  been  lost."  l  Thus  good  morals,  intelligence,  monog- 
amy, and  Christianity  are  creative  of  productive  forces.  All 
those  membefs  of  society  who  tend  to  develop  in  any  way  true 
manhood  and  womanhood  are  productive,  not  "  sterile  "  or  bar- 
ren, as  they  might  have  been  called  by  the  Physiocrats,  or  "  un- 
productive," as  Adam  Smith  designated  some  of  them. 

It  is  false,  List  claims,  to  say  that  labor  is  the  source  of  value. 
Whole  nations  may  be  in  poverty,  despite  the  labor  of  their 
citizens.  The  most  depends  upon  society:  whether  sciences 
and  arts  are  developed;  whether  good  institutions,  laws,  re- 
ligion, morality,  security,  and  freedom  exist ;  whether  agriculture, 
manufactures,  and  commerce  are  harmoniously  extended. 

These  ideas  are  fundamentally  connected  with  List's  theory  of 
protection. 

List's  views  led  him  to  optimistic  conclusions  as  to  the  future. 
He  was  opposed  to  the  Malthusian  doctrine,  though  more  to  the 
popular  and  dogmatic  representations  of  it  than  to  Malthus' 
own  teachings.  These  List  does  not  appear  to  have  carefully 
studied.2 

As  in  Miiller's  writings,  one  finds  in  those  of  List  a  protest 
against  the  absolutistic  tendencies  of  the  School.  Neither  one, 
however,  is  himself  free  from  them.  Miiller,  as  already  observed, 
neglected  the  various  developments  of  different  times.  List, 
on  the  other  hand,  does  not  consider  sufficiently  the  diversity  in 
the  growth  of  countries.  He  lays  down  one  rule  for  all  to 
follow.  He  simply  makes  a  distinction  between  the  countries 
of  the  temperate  zones  and  those  of  the  tropics,  a  difference  which, 

1  Chap.  XII,  paragraph  3. 

*  Cf.  National  System,  Bk.  II,  "  The  Theory,"  middle  of  Chap.  XI. 


THE  EARLY  NATIONALISTS  325 

as  Knies  has  shown,  includes  a  new  error.  So  he  is  wrong  in 
maintaining  that  "  the  production  of  raw  materials  and  commod- 
ities among  the  great  nations  of  temperate  climes  has  no  real 
importance  but  in  regard  to  internal  trade."  1  The  production  of 
raw  material  is  at  present  of  the  greatest  importance  for  the  for- 
eign commerce  of  the  United  States.  The  division  he  makes  is 
artificial,  and  cannot  be  supported  by  history.  It  is  unreason- 
able to  suppose  that  all  peoples  between  the  Tropic  of  Cancer  and 
the  Tropic  of  Capricorn  should  always  be  content  to  devote  them- 
selves exclusively  to  agriculture.  And  again,  the  history  and 
present  condition  of  the  Orient  show  a  considerable  growth  of 
commerce  following  immediately  upon  the  agricultural  stage 
without  waiting  for  the  development  of  manufactures.  Having 
once  recognized  a  difference  of  development  in  place,  he  ought  to 
have  studied  more  carefully  the  historic  order  of  national  growth. 
List  is  also  open  to  criticism  on  the  score  of  not  doing  full 
justice  to  Adam  Smith.  That  writer  was  by  no  means  so  ab- 
solutely blind  to  national  lines,  warfare,  etc.,  as  List  would 
represent  him ;  but  made  room  for  certain  duties  and  bounties 
and  held  that  "defence  is  of  much  more  importance  than  opu- 
lence." 

List  has  many  followers  to  this  day,  though  they  have  generally 
taken  agriculture  within  the  protective  wall,  and  his  influence  is 
strong  among  German  officials.  German  railway  policy  has  been 
colored  by  his  economic  principles.  In  the  United  States  the 
platform  of  the  Republican  party  for  a  long  time  was  based 
upon  his  doctrines.2 

Henry  C.  Carey.3  —  Though  in  many  respects  a  follower  of 
Smith's,  Carey  was  also  a  critic  of  the  classical  political  economy. 
He  was  a  protectionist  and  a  Nationalist.  Carey's  arguments 
in  favor  of  protection  are  somewhat  different  from  those  ad- 
vanced by  List.  He  brings  other  points  into  special  promi- 
nence. He  lays  weight,  as  does  List,  upon  the  civilizing  influ- 

1  National  System,  pp.  76-77. 

2  A  section  accordingly  split  off  from  that  party  when  it  abandoned  List's 
idea  of  evolutionary  protectionism. 

3  For  Carey's  life  and  writings,  see  above,  pp.  240  ff. 


326  ECONOMIC  THOUGHT 

ence  of  manufactures  and  commerce.  He  holds  that  America 
would  be  a  stupid,  uninteresting,  and  barbarous  country,  if 
all  Americans  devoted  themselves  to  agriculture.  Agricul- 
ture itself  would  be  in  a  poor  way  then,  as  the  products 
of  the  land  would  find  no  convenient  market.  The  cost 
of  transportation  to  distant  countries  would  consume  the 
greater  share  of  the  farmer's  profits.  While  it  might  be  possible 
to  prove  Carey's  statement  that  "  the  first  and  heaviest  tax  to  be 
paid  by  land  and  labor  is  that  of  transportation,"  it  is  surprising 
to  read  the  sentence  following,  in  which  the  ratio  between  the 
distance  goods  are  transported  to  the  cost  of  transportation  is 
defined  with  mathematical  accuracy.  The  cost  of  transportation, 
says  Carey,  "  increases  in  geometrical  proportion  as  the  distance 
from  market  increases  arithmetically."  This  is  far  from  being 
true. 

However,  Carey's  arguments  in  favor  of  protection  by  no 
means  depend  upon  the  accuracy  of  this  formula.  His  two  chief 
points  are  the  benefit  of  association,  and  the  necessity  of  return- 
ing to  the  earth  what  is  taken  from  it.  Association  develops  in- 
dividuality, "  which  has  ever  been  in  the  ratio  of  the  power  of 
man  to  combine  with  his  fellow-men."  Now  if  protection  favors 
the  growth  of  association,  it  ought  to  be  encouraged.  This  fol- 
lows from  the  very  definition  of  social  science  given  by  Carey ; 
for  it  is  defined  to  be  "  the  science  of  the  laws  which  govern  man 
in  his  efforts  to  secure  for  himself  the  highest  individuality  and 
the  greatest  power  of  association  with  his  fellow-men."  1  Asso- 
ciation cannot  take  place  to  any  great  extent  among  those  who 
pursue  the  same  employment.  Diversity  is  needed.  Unlikes 
unite  and  supplement  each  other.  The  farmer  combines  with 
the  blacksmith,  and  the  miller  with  the  baker.  The  diversity 
of  pursuit  promotes  and  requires  intellectual  development. 
America  does  not  wish  to  become  a  great  farm  for  a  city 
called  England;  but  this  is  what  would  result  from  following 
British  policy.  "  It  is  selfish  and  repulsive,"  says  Carey,  "  its 
essential  object  being  the  separation  of  the  consumers  and  the 
producers  of  the  world.  In  that  direction  lie  poverty  and  sla- 
1  Principles  of  Social  Science,  p.  47  (Philadelphia,  1858-1859). 


THE  EARLY  NATIONALISTS  327 

very."  It  has  impoverished  every  land  which  has  followed  it,  as 
Ireland,  India,  Portugal,  Turkey,  and  the  West  Indies.  It  is 
even  ruining  England  herself.  She  is  constantly  exhausting 
the  countries  with  which  she  deals,  and  is  obliged  to  seek 
continually  new  markets.  She  thus  becomes  more  and  more 
dependent  upon  the  rest  of  the  world.  Any  change  in  the 
policy  of  other  countries  or  interruption  of  trade  by  war  or 
natural  calamity  must  bring  misery  to  the  English  people. 
All  efforts  are  put  forth  for  the  one  end  of  cheap  production. 
Wages  are  reduced,  and  man  is  regarded  as  but  a  machine. 
A  few  become  wealthy,  but  the  people  as  a  whole  remain  poor 
and  wretched. 

Carey's  second  leading  argument  is  the  necessity  of  returning 
to  the  soil  what  has  been  taken  from  it.  He  lays  down  this  law : 
"  The  consumer  must  take  his  place  beside  the  producer  in  order 
to  enable  man  to  comply  with  the  condition  on  which  he  obtains 
loans  from  the  great  bank  of  mother  earth  —  the  simple  con- 
dition that  when  he  shall  have  done  with  the  capital  furnished  to 
him,  he  shall  return  it  to  the  place  whence  it  has  been  taken."  l 
If  this  is  not  done,  Carey  holds  that  the  soil  becomes  exhausted 
and  the  land  less  productive.  Accordingly,  if  a  land  begins 
by  exporting  raw  material,  it  will  end  by  exporting  men,  as 
in  the  case  of  Ireland.  If,  however,  produce  is  carried  only 
to  neighboring  cities,  they  return  it  to  the  land  in  the  shape  of 
fertilizers. 

This  argument  concerning  the  exhaustion  of  the  soil  is  undoubt- 
edly quite  specious.  It  implies  a  denial  of  the  fact  that  by 
foreign  trade  the  wealth  of  a  nation  may  be  increased ;  for  if  it 
be  admitted  that  exchange  with  other  countries  is  profitable,  it 
must  follow  that  by  such  exchange  a  nation  may  gain  increased 
power  to  refresh  its  soil.  Other  and  possibly  cheaper  ways  exist 
by  which  produce  may  be  returned  to  the  soil  than  by  retaining 
a  portion  for  direct  application,  as,  for  example,  by  the  use  of 
chemical  fertilizers  or  the  growth  of  certain  crops;  and  to  re- 
strict foreign  trade  may  check  these  means  of  restoring  any 
lost  fertility. 

1  Social  Science,  p.  53. 


328  ECONOMIC  THOUGHT 

As  a  follower  of  Carey's,  E.  Diihring,  a  German  economist,  is 
worthy  of  brief  mention.1 

Summary.  —  Of  the  economists  discussed  in  this  chapter,  it 
may  be  said  that  they  stood  for  much  criticism  of  the  classical 
political  economy,  and  especially  criticism  on  the  score  of  its 
individualism  and  cosmopolitanism.  They  were  Nationalists. 
They  emphasized  the  nation  as  an  important  fact,  often  regard- 
ing it  as  a  living  organism  or  as  a  quasi-organism,  and  placing  it 
above  the  individual  and  between  him  and  the  world.  Well 
down  to  this  day,  German  economists  have  frequently  called 
their  science  National  Oekonomie. 

Accordingly  they  stood  for  protection,  accusing  England's 
thinkers  of  recommending  in  free  trade  what  would  benefit  their 
own  nation  al'one,  at  least  in  the  then-existing  stage  of  relative 
development. 

In  this  connection,  the  historical  idea  frequently  appears,  and 
Miiller  and  List  are  noteworthy  as  precursors  of  the  Historical 
School.  The  former's  resort  to  earlier  times  and  his  treatment 
of  the  state  as  an  organism  suggest  this,  but  List,  with  his  discus- 
sion of  the  stages  in  the  evolution  of  nations,  was  more  truly  his- 
torical. To  the  extent  that  these  analyses  of  institutions  and 
stages  are  ideals  spun  out  of  the  mind,  they  are,  of  course,  me- 
chanical in  nature,  and  not  truly  historical,  and  this  is  largely 
true  of  Mliller's  thought. 

Consistently  with  their  leading  idea,  Miiller,  List,  and  Carey 
criticized  the  one-sidedness  of  the  principle  of  division  of  labor 
as  developed  by  Smith.  They  called  attention  to  the  associa- 
tion or  cosmopolitan  phase  of  it. 

Their  attitude  toward  individualism  and  materialism  was  such 
that  they  were  led  to  attack  the  emphasis  laid  on  objective  ex- 
change value  in  one  way  or  another.  This  Miiller  and  List  did 
from  a  predominantly  ethical  point  of  view. 

Miiller  painted  the  darker  tints  of  the  money  economy  and  de- 

1  Kapital  und  Arbeit,  1865. 
Die  Verkleinerer  Carey's,  1868. 
Kritische  Geschichte  der  Nationalokonomie,  1871. 
Kurstis  der  National-  und  Sozialokonomie,  1873. 


THE  EARLY  NATIONALISTS  329 

sired  to  retain  the  remnants  of  the  "  natural  economy  "  of  the 
Middle  Ages.  List  accepted  the  economy  of  his  time,  but  as- 
sailed Smithian  teaching  on  the  ground  that  it  worked  toward  an 
English  monopoly  of  trade;  and  Carey  likewise  developed  his 
doctrine  of  protection  in  the  interest  of  his  young  nation. 
Though,  in  a  sense,  absolutists  themselves,  their  criticisms  served 
to  offset  the  absolutism  of  the  Classical  School,  and  paved  the 
way  for  a  broader  and  truer  economics. 


c.  SOCIALISTIC   CRITICS 

CHAPTER  XXI 
EARLY    NINETEENTH-CENTURY    SOCIALISM » 

THE  changes  involved  in  the  Industrial  Revolution  brought 
many  industrial  maladjustments  and  economic  ills  in  their  train. 
Poverty,  misery,  and  crises  became  frequent.  Naturally,  then, 
in  seeking  reasons  and  remedies  for  these  things,  some  were  led 
to  criticize  the  whole  movement  and  the  system  of  economic 
thought  which  attended  it.  The  critic  Sismondi  was  so  in- 
clined, but  accepted  the  existing  social  order  and  the  main  out- 
lines of  the  classical  system  of  thought.  Others  sought  relief  in  a 
romantic  reaction  to  the  cast-off  institutions  of  medieval  times. 
In  this  chapter,  however,  a  group  of  thinkers  will  be  discussed, 
who,  while  accepting  the  technical  industrial  progress  of  the 
time,  with  its  large-scale  production  and  division  of  labor,  op- 
posed some  of  the  fundamental  ideas  and  institutions  of  the  exist- 
ing social  order,  and  censured  the  economists  for  postulating  cer- 
tain social  institutions  as  though  they  were  ultimate  and  merely 
to  be  taken  for  granted.  They  sought  no  mere  chimera.  They 
proceeded  upon  no  merely  moral  basis.  And  in  this  general  way 
their  schemes  differed  from  those  of  Sir  Thomas  More,  Mably, 
Morelly,  Godwin,  and  Babeuf.  Theirs  was  an  economic  point 
of  view ;  and  their  criticism  sprang  out  of  the  throes  of  the  Indus- 
trial and  French  Revolutions.  In  a  word,  the  men  now  to  be 

1  See  Ely,  French  and  German  Socialism;  Kirkup,  History  of  Socialism; 
Sombart,  Socialism  and  the  Social  Movement;  Rae,  Contemporary  Socialism; 
Menger,  The  Right  to  the  whole  Produce  of  Labor;  Gide-Rist,  Histoire  des 
Doctrines  Economiques;  and  many  others  referred  to  in  those  works.  This 
and  a  succeeding  chapter  on  Socialism  do  not  aim  to  present  a  full  account  of 
the  subject  in  all  its  social  and  political  aspects,  but  merely  to  indicate 
some  aspects  of  its  significance  as  a  criticism  of  economic  theory. 

33° 


EARLY   NINETEENTH-CENTURY  SOCIALISM  331 

treated  were  anti-capitalistic,  and  advocated  sweeping  economic 
reforms.  They  criticized  the  existing  idea  of  private  property 
and  competition.  They  were  Socialists. 

It  is  characteristic  of  these  early  Socialists  that  their  thoughts 
partook  of  the  transitional  condition  of  the  time.  As  youths 
the  first  of  them  imbibed  the  optimism  of  the  early  French  Revo- 
lution, as  illustrated  by  Godwin,  with  his  ideas  of  human 
perfectibility.1  The  idealistic  nature  philosophy  of  the  eight- 
eenth century  lingered  on  into  the  nineteenth,  and  is  seen  in  their 
thought.  But  all  the  time  the  rise  of  a  permanent  class  of  wage- 
earners  and  a  realization  of  its  oppressed  condition  went  on. 
Modern  industrialism  was  beginning  to  take  shape.  The  Smith- 
ian  economics  was  essentially  bourgeois  or  capitalistic  and  middle- 
class  ;  and  as  the  proletariat  or  wage-earning  class  became  more 
numerous  and  distinct,  the  conflicts  between  their  interests  and 
the  doctrines  of  the  classical  economics  began  to  appear.  On 
the  one  hand,  the  revolutions  in  philosophical  and  political 
thought  had  hardly  been  consummated,  and  their  principles  had 
not  been  thoroughly  applied.  On  the  other  hand,  the  evils  of  the 
revolution  in  industry  were  beginning  to  show.  But  for  the  time 
men  had  reacted  against  the  excesses  of  the  French  Revolution ; 
and  as  the  uneducated  and  riotous  proletariat  seemed  incapable, 
and  its  class  consciousness  was  undeveloped,  self-help  did  not 
seem  adequate  as  a  solution.  What,  then,  was  to  be  done  ? 

Under  such  circumstances  there  arose  the  three  noted  utopists, 
Saint-Simon,  Owen,  and  Fourier,  who  almost  simultaneously 
conceived  the  idea  of  bringing  down  aid  to  the  poor  from  above, 
of  regenerating  mankind  by  educating  them  to  live  in  an  ideal 
social  order  guided  by  the  wisest  and  best  among  them.  In 
their  schemes  for  social  reform  these  men  were  speculative,  and 
reasoned  from  ideal  postulates.  Moreover,  they  were  broadly 
humanitarian  in  their  plans,  differing  from  later  Socialists  in 
that  they  did  not  seek  to  organize  the  laborers  in  class-conflict, 
but  to  improve  the  lot  of  humanity  through  educational  experi- 
mentation. They  were  not  revolutionary,  but  appealed  to  the 
dominant  classes  for  aid.  They  were  rather  bourgeois  in  their 
1  Above,  p.  195. 


332  ECONOMIC  THOUGHT 

ideas,  the  proletarian  movement  not  having  become  marked 
until  after  1830. 

I.  The  Utopian  or  Bourgeois  Socialists.  —  i.  Saint-Simon 
and  the  Saint-Simonists.  —  Saint-Simon  (1760-1825)  is  notable 
for  his  breadth  of  view  and  his  creative  suggestiveness.1  He 
himself  departs  less  radically  from  the  existing  order  than  the 
others,  though  his  followers  went  further.  While  suggesting 
modifications,  he  was  not  so  clearly  opposed  to  private  prop- 
erty, and  seems  to  allow  it  in  capital  when  it  is  in  form  of 
what  he  calls  an  investment  worthy  of  compensation. 

Neither  does  he  have  in  mind  the  conflict  between  labor  and 
capital,  but  a 'more  general  one  between  the  workers  and  the 
idle.  Society  should  be  reorganized  in  such  a  way  that  all 
must  work. 

The  heart  of  Saint-Simon's  idea  was  to  direct  the  labor  of  the 
nation  so  as  to  ameliorate  the  physical  and  moral  condition  of  all 
its  members.  To  this  end  he  advocated  a  broad  industrialism. 
To  his  mind  the  industrial  class  —  including  all  workers  —  had 
achieved  the  Revolution,  and  upon  it  depended  freedom.  The 
present  social  classes  must  go.  The  nation  was  to  be  organized 
on  an  industrial  basis  in  which  industrial  chiefs  should  control 
production.  Government  would  thus  be  reduced  to  the  direc- 
tion of  a  national  association  for  industrial  purposes.  Man- 
kind would  then  cease  exploiting  one  another,  and  mutually 
turn  to  exploit  the  earth. 

All  this,  of  course,  implies  his  criticism  of  the  existing  system 
of  directing  industry. 

His  followers,  and  notably  Bazard  and  Enfantin,  went  further 
than  Saint-Simon  in  attacking  private  property.2  As  the  idle 

1  Writings  of  economic  significance :  — 
Lettres  d'un  Habitant  de  Geneve,  1803. 
L' 'Industrie,  1817. 
L'Organisateur,  1819. 

Du  Systeme  Induslriel,  1821. 
Catechisme  des  Industries,  1823. 
Nouveau  Christianisme,  1825. 

2  See  Doctrine  de  Saint-Simon,  Premiere  Annee,  Exposition,  1829.     (Paris, 
1830) 


EARLY  NINETEENTH-CENTURY  SOCIALISM  333 

class  must  go,  and  all  are  to  work,  capitalists,  as  such,  cannot 
exist.  In  so  far  as  their  income  arises  from  the  ownership  of 
capital,  it  is  not  earned,  but  is  the  result  of  exploiting  labor. 
Under  the  present  system  the  industrial  chiefs  dictate  terms  on 
pain  of  starvation,  for  they  own  the  instruments  of  production.1 
Moreover,  they  keep  these  instruments  through  the  institution 
of  inheritance.  Inheritance  must  be  abolished,  then,  and  the 
instruments  of  labor  be  socialized.  In  a  word,  a  system  of  collec- 
tivism is  advocated. 

From  the  point  of  view  of  production,  too,  it  was  maintained 
that  the  system  of  inheritance  does  not  insure  that  property  will 
fall  in  the  most  capable  hands. 

The  Saint-Simonists,  like  Sismondi,  point  out  that  in  the  or- 
ganization of  labor  the  problem  is  to  harmonize  production  and 
consumption.  Here  the  economists  turn  to  laisser-faire  com- 
petition. But  this  leads  to  struggle  and  loss,  and  crises  result 
from  recurring  disturbances  of  the  balance  of  production  and  con- 
sumption. They  complain  of  isolated  efforts  and  egoism. 

2.  The  Associationists :  Owen,  Fourier,  and  Thompson. — 
Saint-Simon  differed  from  the  other  Utopian  Socialists  who  are 
to  be  discussed,  in  that  his  idea  was  based  upon  a  broader  social- 
ization of  industry  than  theirs.  He  differed  in  his  idea  of  cen- 
tralization. For  the  latter  sought  reform  in  voluntary  local  com- 
munities ;  whereas  Saint-Simon  would  have  reformed  society  in 
a  lump,  a  method  which  could  easily  suggest  State  Socialism, 
though  he  himself  did  not  advocate  such  a  radical  and  positive 
step.  Owen  and  Fourier  are  both  characterized  by  their  ad- 
vocacy of  associations  with  a  limited  membership,  and  may  be 
distinguished  by  the  term  "  associationists."  These  associa- 
tions were  to  be  voluntary,  springing  from  mutual  consent  of  the 
members. 

Robert  Owen  (1771-1858) z  was  less  of  an  idealist  than  Saint- 
Simon  and  Fourier.  He  was  somewhat  more  practical  in  his 
methods,  but  altogether  unhistorical  in  spirit.  His  philosophy, 

1  Ibid.,  6°  S6ance. 

2  For  his  earlier  views  see  A  New  View  of  Society,  1812.     His  maturer 
doctrine  is  found  in  The  Book  of  the  New  Moral  World,  1820. 


334  ECONOMIC  THOUGHT 

however,  had  much  in  common  with  theirs.  He  believed  that 
men  are  naturally  good :  evils  are  not  inherent  in  the  nature  of 
things,  but  lie  in  the  capitalistic  system,  which  perverts  the 
natural  order.  Concretely  there  are  three  barriers:  private 
property,  religion,  the  institution  of  marriage.  In  his  ideal  com- 
munal order  these  would  be  removed,  and  man's  natural  goodness 
could  find  free  expression. 

At  an  early  age,  Owen  in  1800  became  manager  of  extensive 
cotton  mills  at  New  Lanark.  Here  he  was  a  witness  of  current 
labor  abuses.  He  estimated  that  his  employees  were  produc- 
ing a  vast  amount  of  real  wealth  in  which  they  had  no  share,  and 
lacked  a  chance  to  develop  their  faculties  adequately.  He  ac- 
cordingly came  to  advocate  education  and  a  better  environment 
for  working  people.  Then  his  ideas  grew  more  Socialistic,  and  he 
demanded  the  abolition  of  profits,  speculation,  money,  and  well- 
nigh  the  whole  machinery  of  exchange  then  current.  Owen  be- 
lieved that  the  just  price  of  a  good  is  its  cost.  To  charge  more 
was  unjust.  But  profits  seemed  to  him  to  arise  from  selling 
above  cost.  Also  they  stimulate  overproduction  and  lead  to 
crises.  Money  based  upon  the  value  of  precious  metals  helps 
confuse  the  relation  between  the  true  values  of  goods  in  an  ex- 
change, and  labor  notes  based  upon  the  labor  time  involved  in 
producing  the  goods  should  be  used  as  a  medium  in  its  place.1 

Owen  severely  arraigned  the  idea  that  competition  is  in  the 
best  interests  of  society. 

Charles  Fourier  (1772-1837)  was  almost  exactly  contemporary 
with  Owen,  and  had  very  similar  ideas.2  Although  his  thought  is 
marred  by  loose  and  inexact  statement,  he  was  a  keen  critic  of  the 
existing  industrial  system. 

Association  is  the  leading  idea  of  his  thought.  It  is  made  a 
principle  of  attraction  among  men,  like  the  law  of  gravitation  in 

1  This,  it  will  be  observed,  would  be  a  narrow  application  of  Ricardo's 
earlier  idea  of  a  measure  of  value. 
*  La  Theorie  des  Quatre  Mouvements  et  des  Destinies  Generates,  1808. 

Traiti  de  V Association   Domestique   Agricole  ou  Attraction  Industriette, 
1832. 

Nouveau  Monde  Industrial  et  Societaire,  1829. 


EARLY  NINETEENTH-CENTURY  SOCIALISM  335 

the  physical  world ;  its  operation  being  impeded  in  the  existing 
order.  Harmony  could  be  obtained  only  in  his  communities, 
called  phalanxes,  which  were  to  contain  some  1800  members  and 
carry  on  production  in  the  interest  of  the  group.  These  groups 
would  be  large  enough  to  afford  all  useful  combinations,  but  not 
so  large  as  to  necessitate  useless  classes  (soldiers  and  policemen) 
or  to  prevent  general  cooperation. 

To  the  economist,  Fourier's  ideas  concerning  labor  and  its 
reward  are  the  most  interesting.  He  taught  that  all  labor  may 
be  pleasant ;  it  is  only  overwork  that  makes  it  painful,  and  over- 
work would  be  unnecessary  in  his  association.  Moreover,  a  desire 
for  change  is  recognized,  and  each  member  could  take  up  some  dif- 
ferent task  at  the  end  of  two  hours.  Between  the  ages  of  eight- 
een and  twenty-eight  a  man  could  produce  enough  to  warrant 
his  passing  the  remainder  of  his  life  in  leisure.  Labor  is  divided 
by  Fourier  into  three  grades :  necessary,  useful,  and  agreeable. 
The  first  of  these  was  to  receive  the  highest  reward;  while 
pleasant  labor  of  all  kinds  would  be  the  lowest  paid.  All  mem- 
bers were  to  receive  a  minimum.  Thus  his  scheme  makes  exer- 
tion the  chief  basis  for  reward. 

Perhaps  Fourier  is  to  be  regarded  as  inconsistent  on  one  im- 
portant point,  —  either  that,  or  he  was  not  a  thorough-going 
Socialist,  —  for  he  provided  for  a  return  to  capital,  as  such.  The 
surplus  remaining  after  the  minimum  had  been  given  to  each 
member  was  to  be  distributed  in  such  a  way  that  five  twelfths 
would  go  to  labor,  four  twelfths  to  capital,  and  three  twelfths  to 
talent. 

Fourier's  merits  have  been  summed  up  as  follows :  "  There 
is  a  good  deal  of  truth  in  some  of  his  critical  remarks.  The  ii  - 
portance  of  cooperative  production  has  been  recognized  chiefly 
in  consequence  of  his  first  pointing  out  the  economical  benefits 
of  association.  The  narrow-minded  fear  of  wholesale  trade,  and 
machinery,  too,  was  in  a  measure  dispelled  by  Fourier's  unquali- 
fied recognition  of  their  value.  His  remarks  on  the  unnecessary 
hardships  of  labor  and  the  evil  consequences  of  excessive  toil  have 
had  their  influence  on  modern  factory  laws.  .  .  .  Sanitary 
reforms,  and  improvements  of  the  laborer's  homestead  .  .  . 


336  ECONOMIC  THOUGHT 

owe  not  a  little  of  their  origin  to  the  spread  of  Fourier's 
ideas."  l 

William  Thompson  was  an  Irish  Socialist  whose  fame  has 
been  less  than  his  deserts.  His  chief  work,2  entitled  An  Inquiry 
into  the  Principles  of  the  Distribution  of  Wealth  most  Conducive 
to  Human  Happiness,  was  published  in  1824,  and  contains  a 
clear  statement  of  ideas  that  form  the  basis  of  the  later  Marxian 
Socialism.  In  his  own  proposals  for  reform,  however,  Thompson 
was  a  follower  of  Owen. 

He  argues  that  labor  produces  all  value  in  exchange,  and  that 
all  the  product  of  labor  should  belong  to  it.  But  with  our  pres- 
ent social  institutions  labor  gets  a  bare  subsistence  remuneration, 
the  balance  of  its  product  going  to  land  and  capital.  Under 
the  existing  social  order  the  dominant  capitalist  class  regards 
the  difference  between  subsistence  wages  and  the  increasing 
value  of  the  social  product  as  being  a  surplus  value  due  to  its  su- 
perior intelligence  and  skill.  By  reason  of  their  political  power 
this  class  is  enabled  to  make  an  unjust  deduction  from  labor's 
product. 

Accordingly  Thompson  thinks  that  there  must  be  a  reconstruc- 
tion of  social  institutions.  But  he  does  not  carry  his  ideas  to 
their  logical  conclusion,  for  he  would  not  abolish  property 
rights  nor  take  the  whole  produce  of  labor  from  capitalists 
and  landowners.  "  Thompson's  object,  like  that  of  so  many 
other  socialists,  was  to  prove  the  injustice  of  unearned  income 
and  private  property  .  .  . :  but  the  communistic  tendencies 
which  he  borrowed  from  Owen  prevented  him  from  drawing  its 
positive  consequences."  3 

Thompson's  great  significance  lies  in  the  fact  that  the  basal 
ideas  of  such  later  Socialists  as  Rodbertus  and  Marx  concerning 
surplus  value  may  be  traced  to  him. 

1  Kaufmann,  Sck&ffle's  Socialism,  cited  by  Ely,  French  and  German  Social- 
ism, p.  100. 

2  Thompson  also  wrote :  An  Appeal  of  one  Half  the  Human  Race,  Women, 
against  the  Pretensions  of  the  other  Half,  Men,  1825;   Labour  Rewarded,  the 
Claims  of  Labour  and  Capital  conciliated,  1827;   Practical  Directions  for  the 
speedy  and  economical  establishment  of  Communities,  1830. 

*  Menger,  A.,  The  Right  to  the  whole  Produce  of  Labour,  p.  59. 


EARLY  NINETEENTH-CENTURY  SOCIALISM  337 

II.  The  Transition  to  More  Realistic l  and  Proletarian 
Socialism  in  France  (1840-1848).  —  In  so  far  as  class  conflict 
was  involved,  all  the  insurrections  and  revolutions  down  through 
1830  were  essentially  bourgeois,  that  is,  capitalist  and  middle- 
class.  They  were  not  of  and  for  wage-earners  or  laborers. 
But  early  in  the  thirties  there  came  a  change  in  this  regard. 
Although  the  French  revolution  of  July,  1830,  was  a  bourgeois 
affair,  it  served  to  bring  the  proletariat  into  greater  prominence. 
Then  in  1831  the  Lyons  silk- weavers  rose  in  insurrection.  By 
1837  the  Chartist  movement  was  on  foot  in  England.  Finally, 
in  1848,  the  great  proletarian  revolution  occurred  in  France, 
and  from  that  time  modern  realistic  Socialism  may  be  dated. 
At  about  the  same  time  German  Socialism  took  the  lead. 

There  is,  perhaps,  some  degree  of  realism  manifest  in  the  work 
of  the  following  Socialists.  Yet  they  are  by  no  means  freed 
from  the  Utopian  notion  that  all  that  is  needed  to  reform  society 
is  to  invent  some  scheme  through  which  their  ideals  might  speed- 
ily be  realized.  Their  thought  was  transitional. 

Louis  Blanc. — Louis  Blanc  (1813-1882)  was  not  the  most 
original  of  the  early  Socialists,  but  he  is  notable  for  being  the  first 
to  make  the  connection  between  politics  and  social  reform.  The 
preceding  Socialistic  thinkers  had  depended  upon  education, 
upon  a  recognition  of  the  truth  of  their  doctrines,  for  the  spread 
of  the  system  advocated.  Association  was  to  be  voluntary  and 
unaided  by  the  state.  With  Blanc  the  state  was  depended  upon 
to  aid  in  carrying  out  the  system  proposed. 

But  in  a  sense  Louis  Blanc  is  only  transitionary  in  this  regard. 
Indeed,  he  is  sometimes  classed  as  an  associationist,2  and  he  ad- 
vocated social  workshops  (ateliers  sociaux)  where  men  in  similar 
industries  should  cooperate.  Socialism  proper  would  thus  exist 
only  within  various  separate  branches  of  industry,  presumably 
leaving  the  relations  between  these  branches  to  the  regime  of 
contract  and  competition.  Blanc's  associations  were  to  be  ini- 

1  The  words  "  realism  "  and  "  realistic  "  are  not  here  used  in  their  philo- 
sophical sense,  but  as  used  in  art  and  literature,  —  meaning  lifelike  and 
based  on  facts,  rather  than  imaginary  or  Utopian. 

1  E.g.  Gide-Rist,  Histoire  des  Doctrines  Economiques. 


338  ECONOMIC  THOUGHT 

tiated  and  subsidized  by  the  state,  however,  and  were  not  the 
self-sufficient  units  of  Owen  and  Fourier. 

Louis  Blanc's  celebrated  work,  Organization  du  Travail 
(Organization  of  Labor),  was  published  in  I84I.1  The  central 
point  in  his  thought  is  a  desire  for  the  broad  and  perfect  develop- 
ment of  each  man's  personality.  Proceeding  from  the  idea  of 
the  brotherhood  of  man,  he  advocated  payment  not  according 
to  service  or  productivity,  but  according  to  wants.  Only  by 
giving  to  each  according  to  his  needs  could  his  goal  be  attained. 
His  system,  therefore,  is  not  like  that  of  the  later  Socialists,  based 
upon  a  demand  for  "  the  whole  produce  of  labor,"  but  upon  the 
more  philanthropic  idea  of  a  right  to  subsistence  (droit  a  la  vie). 

Certainly  such  a  distribution  of  property  and  income  does 
not  now  exist;  and  competition,  to  which  distribution  in  the 
existing  order  is  submitted,  he  fairly  anathematized.  It  is  mur- 
derous warfare.  It  places  a  man  outside  of  society,  emphasizing 
his  rights  without  indicating  his  duties.  We  must  seek  a  new 
organization  which  will  abolish  individualism,  competition,  and 
private  property,  and  in  their  stead  place  fraternity  and  har- 
mony. 

His  ateliers,  as  established  in  the  different  industries,  were 
to  bring  production  to  this  level  and  to  afford  to  all  a  "  natural  " 
right,  that  is,  the  right  to  work  (droit  au  travail).  But  the  poor 
laborers  were  in  no  position  to  set  up  these  shops;  therefore 
the  state  was  appealed  to,  and  was  to  organize  them  and  furnish 
the  funds.  After  the  first  year,  however,  the  heads  would  be 
elected. 

Inasmuch  as  Louis  Blanc  advocated  needs  as  a  basis  for  re- 
wards, he  was  no  egalataire.  He  wrote :  "  Equality,  then,  is  only 
proportionality,  and  it  exists  in  a  true  manner  only  when  each  one 
in  accordance  with  the  law  written  in  some  shape  in  his  organiza- 
tion by  God  himself,  produces  according  to  his  Faculties  and 
consumes  according  to  his  Wants."  2 

Proudhon.  —  With  Pierre- Joseph  Proudhon  (1809-1865)  one 

1  There  were  considerable  additions  in  a  fifth  edition  that  appeared  in 
1850. 

1  Organization  du  Travail,  9th  ed.,  p.  72. 


EARLY  NINETEENTH-CENTURY   SOCIALISM  339 

comes  to  a  thoroughly  proletarian  Socialism,  and  the  beginning 
of  one  line  of  Anarchism.  Indeed,  one  finds  in  his  thought 
much  that  foreshadows  the  doctrines  of  the  more  "  scientific  " 
Socialism  taught  by  Marx  and  Engels.  More  sharply  and 
directly  than  any  of  the  others  Proudhon  centered  his  attack 
upon  property  rights.  Property  as  distinguished  from  posses- 
sion, he  said,  is  robbery ;  property-owners  are  thieves.1  Even 
to  common  property  in  a  communistic  state  he  objects,  and  "n 
this  foreshadows  the  split  between  Socialism  and  Anarchism. 

He  makes  short  work  of  the  idea  that  occupation  justifies  pri- 
vate property,  turning  his  attention  chiefly  to  land.  J.  B.  Say 
is  quoted  as  justifying  property  in  land  on  the  ground  that  land 
is  fixed  and  limited  in  extent;  but  that  merely  explains  the 
existence  of  property,  —  it  does  not  justify  ownership.  And 
Comte's  argument  from  limited  supply  seems  to  Proudhon  to  go 
against  him,  for  that  is  the  reason  why  it  should  be  free  to  all. 
If  it  were  unlimited,  all  might  have  property  in  it  and  no  one 
would  be  hurt. 

But  what  of  the  labor  theory  of  property?  If  labor  is  to  jus- 
tify property,  Proudhon  thinks  that  whenever  any  one  labors  on 
a  farm  he  must  acquire  property  rights  in  it.  "  The  laborer 
retains,  even  after  he  has  received  his  wages,  a  natural  right  of 
property  in  the  thing  which  he  produced."  What  labor  does  is 
to  create  increased  capacity,  and  its  proper  reward  is  the  addi- 
tional income  that  results.  This  does  not  convey  ownership  in 
the  soil  itself.  That  no  man  has  made.  In  short,  land  is  the 
gift  of  nature,  bestowed  upon  all  equally,  and  no  man  has  a  right 
to  appropriate  it  and  its  rent  for  his  own  use. 

Property-owners  are  robbers  because  they  have  made  others 
labor  for  them,  who  have  lost  in  laboring  what  the  owners  gained. 
All  who  labor  should  become  proprietors :  "  this  is  an  inevitable 
deduction  from  the  acknowledged  principles  of  political  economy 
and  jurisprudence,  and  when  I  say  proprietor,  I  do  not  mean 
simply  (as  do  our  hypocritical  economists)  proprietor  of  his  allow- 
ance, his  salary,  his  wages,  —  I  mean  proprietor  of  the  value 

1  Qu'est-ce  qui  la  propriety?  (What  is  Property),  1840.  Works,  Vol.  I, 
translated  by  Benjamin  R.  Tucker,  Boston,  1876. 


340  ECONOMIC  THOUGHT 

which  he  creates,  and  by  which  the  master  alone  profits."  Here, 
then,  is  the  idea  of  a  surplus  value,  as  to  which  labor  is  exploited. 

At  one  point  Proudhon  undertakes  to  explain  how  it  is  that 
capitalists  take  a  profit  from  the  laborer's  product.  The  capital- 
ist pays  each  laborer  of  a  group  a  mere  day's  wage.  But  in  the 
combined  labor  of  the  group  there  is  an  advantage  for  which  he 
does  not  pay.  There  is  a  union  or  harmony  through  which  the 
product  exceeds  the  sum  of  the  individual  products  of  the  sepa- 
rate laborers. 

As  a  remedy  he  concludes  that  labor  should  receive  an  addi- 
tional proportion  of  the  product. 

In  accordance  with  these  ideas  Proudhon  propounds  a  labor 
theory  of  value.  He  begins  by  mocking  the  economists  for  at- 
tempting a  science  while  professing  that  there  is  no  absolute  meas- 
ure of  value.  To  him  the  matter  is  simple.  "  The  absolute 
value  of  a  thing,  then,  is  its  cost  in  time  and  expense."  A  dia- 
mond in  the  rough  is  worth  nothing;  cut  and  mounted  it  is 
worth  the  time  and  expense  involved.  But  it  sells  for  more  than 
this ;  —  that  is  because  men  are  not  free.  Therefore  "  society 
must  regulate  the  exchange  and  distribution  of  the  rarest 
things,  as  it  does  that  of  the  most  common  ones,  in  such  a  way 
that  each  may  share  in  the  enjoyment  of  them."  Value  based 
upon  opinion  (or  utility)  is  delusion  and  robbery. 

Somewhat  paradoxically  Proudhon  attacks  the  thought  of  his 
Socialistic  predecessors.1  He  rejects  association  of  labor  as  en- 
croaching upon  the  liberty  of  the  laborers.  Likewise  commun- 
ism, he  thought,  would  lead  to  inequality,  being  an  exploitation 
of  the  strong  by  the  weak.  His  position  can  be  interpreted  only 
by  grasping  his  desire  to  harmonize  property  and  community 
through  liberty  after  the  manner  of  Hegel's  dialectic.  Thus  he 
would  not  have  abolished  property,  but  rather  have  limited  it. 
He  would  have  confined  property  rights  to  those  things  that  are 
clearly  produced  by  labor,  and  have  based  them  upon  labor. 
Interest,  rent,  and  profits  he  would  have  abolished.  In  this 
course  a  distinction  is  drawn  between  ownership  and  possession 

1  See  Systems  des  contradictions  iconomiques ,  ou  philosophic  de  la  miser e, 
1846;  and  also  the  earlier  work,  What  is  Property? 


EARLY  NINETEENTH-CENTURY  SOCIALISM  341 

which  came  more  easily  to  one  who  lived  under  the  civil  law 
than  to  an  Englishman.  Possession  he  would  have  allowed  to 
individuals.  Thus  liberty  and  property  could  be  made  to  exist 
side  by  side.  On  the  other  hand  community  must  modify  prop- 
erty, but  must  not  restrict  freedom.  Therefore  he  taught  an 
anarchistic  sort  of  communism !  This  latter  paradox  he  solved 
through  a  belief  that  liberty  and  equality  were  one,  —  that  is, 
the  social  cooperation,  easy  tasks,  and  equal  means  of  performing 
them,  which  he  would  have  instituted,  would  make  equal  re- 
wards natural.  Liberty  exists  only  in  the  social  state ;  in  such  a 
state  all  have  equal  capacities  for  performing  tasks ;  social  tasks 
are  equal. 

To  this  whole  group  of  ideas  Proudhon  applied  the  term  "  mu- 
tualism." By  this  he  meant  that  reciprocity  of  services  was  to 
govern  economic  relations :  rights  and  duties  were  to  be  mutual. 
The  idea  is  illustrated  by  the  chief  positive  reform  that  he  advo- 
cated, namely,  his  celebrated  exchange  bank.  Here  products 
would  be  exchanged  without  the  intervention  of  money.  Paper 
money  would  be  issued  for  goods  according  to  the  labor-time 
required  for  their  production,  and  this  medium  would  exchange 
for  any  goods  which  cost  the  same  labor.  Credit,  too,  would 
be  granted  to  every  one,  helping  reduce  interest  to  its  normal  rate, 
which  according  to  Proudhon  is  nil.  Consequently  the  instru- 
ments of  production  could  be  freely  obtained  by  all,  and  land- 
lords and  capitalists  would  cease  to  exist.  Thus  would  mutuality 
reign. 

A  notable  feature  of  Proudhon 's  ^thought  is  its  emphasis  of 
the  collective  or  social  character  of  modern  production.  Neither 
labor,  nor  land,  nor  capital  is  productive  alone ;  production 
results  from  their  cooperation.  And  he  quotes  the  economist 
Droz l  with  approval  as  saying  :  "  Say  credits  capital  with  an 
active  part  unwarranted  by  its  nature ;  left  to  itself,  it  is  an  idle 
tool."  All  production  being  necessarily  collective,  the  laborer  is 
entitled  to  a  share  in  the  product.  All  accumulated  capital  being 
social  property,  no  one  can  be  its  exclusive  proprietor. 

1  See  above,  p.  312. 


342  ECONOMIC  THOUGHT 

III.  Summary.  —  It  is  scarcely  necessary  to  criticize  the 
thought  of  the  early  Socialists.  Their  utopianism  vitiates  a 
great  deal  of  it.  It  is  too  one-sidedly  idealistic.  And  its  bour- 
geois origin  rendered  it  inadequate  to  meet  the  demands  of  a 
suffering  and  increasingly  class-conscious  proletariat.  On  the 
constructive  side  a  characteristic  weakness  is  shown  in  the 
absence  of  any  practicable  plan  for  distribution  according  to 
wants  or  the  other  bases  proposed.  In  some  cases  the  whole 
scheme  is  invalidated  by  containing  discordant  elements  which 
would  probably  intensify  competition,  etc.  Proudhon's  theory 
of  value  is  subject  to  the  same  criticism  as  that  of  Marx,  who 
was  influenced  by  him,  and  the  criticism  of  Marx's  theory  will 
be  found  in  a  later  chapter. 

Considered  from  the  standpoint  of  their  effect  upon  the  stream 
of  economic  thought,  these  Socialists  of  the  first  half  of  the  nine- 
teenth century,  though  their  influence  was  largely  indirect  and 
rather  gradual,  are  of  considerable  importance.  In  the  first 
place,  they  raised  the  question  of  distributive  justice  in  such  away 
as  to  make  it  more  urgent,  and  placed  it  in  a  new  light.  Put  in 
another  way,  they  criticized  economists  for  being  content  with 
what  is  rather  than  what  ought  to  be,  and  in  so  doing  they 
especially  criticized  them  for  taking  for  granted  various  social 
institutions. 

In  the  second  place,  then,  these  early  Socialists  brought  out 
the  significance  of  property  and  inheritance,  both  for  distribution 
and  production.  On  the  one  hand,  they  all  emphasized  the  im- 
portance of  property  rights  as  affecting  distribution,  tending  to 
place  the  question  of  property  distribution  before  that  of  income 
distribution ;  whereas  the  economists  generally  took  the  former 
for  granted.  On  the  other  hand,  some  of  them  made  the  point 
that  the  socialization  of  property  would  do  away  with  wasteful 
or  less  useful  production.  They  did  not  accept  private  property 
as  a  fixed  fact.  They  taught  that  it  is  a  relative  institution 
with  an  historical  development.  So  far  they  were  correct.  But 
they  were  in  error  when  they  reasoned  for  the  abolition  of  private 
property  instead  of  qualifications  or  limitations  upon  it. 

Again  they  all  taught  some  basis  for  distribution  other  than 


EARLY  NINETEENTH-CENTURY  SOCIALISM 


343 


costs  as  determined  by  competition.  With  Saint-Simon  it  was 
"  To  each  according  to  his  capacity,  to  each  capacity  according 
to  results."  Fourier  would  have  rewarded  "  each  according  to 
his  capital,  his  labor,  and  his  skill."  Louis  Blanc  made  wants 
the  basis.  Proudhon  said :  "  The  capacity,  given  to  all,  of 
accomplishing  a  social  task,  —  and  the  impossibility  of  paying 
one  laborer  save  in  the  products  of  another,  justify  the  equal- 
ity of  wages."  These  ideas,  of  course,  would  chiefly  affect  wage 
theories  and  policies  in  so  far  as  they  exerted  any  influence. 

Their  general  emphasis  of  the  social  viewpoint  and  of  the  social 
nature  of  the  productive  process  no  doubt  served  as  a  valu- 
able corrective  to  the  overindividualistic  tendencies  of  the  classi- 
cal school. 

And  closely  related  to  this  point  is  the  influence  that  they  have 
exerted  in  the  direction  of  practical  cooperation.  Owen  and 
Fourier  are  to  be  remembered  in  this  connection.  Not  only  did 
they  stimulate  many  practical  experiments,  but  the  discussion  of 
their  ideas,  or  those  similar  to  them,  has  figured  prominently  in 
theories  of  labor  and  wages. 

Finally,  these  men  had  ideas  of  social  evolution.  They  are 
to  be  remembered  in  connection  with  the  idea  of  stages  in  the 
evolution  of  society,  the  thought  of  Saint-Simon  and  Fourier 
being  most  elaborated  on  this  point.  The  Saint-Simonians  be- 
lieved that  "  Humanity  is  a  collective  being  which  develops ; 
that  being  has  grown  from  generation  to  generation,  as  an  in- 
dividual man  grows,  in  the  succession  of  life  periods  [dges]."  1 
And  Fourier  thought  of  humanity  as  pursuing  a  career  in  which 
there  were  three  great  stages  with  eight  periods. 

1  Doctrine  de  Saint-Simon,  i°  An.,  p.  45.  August  Comte's  ideas  along  this 
line  were  in  part  drawn  from  Saint-Simon,  who  was  his  teacher  for  a  time. 
But  all  these  utopists  lacked  a  true  historical  sense  of  institutional  develop- 
ment, a  fact  which  is  evidenced  by  their  failure  to  appreciate  the  social  value 
of  private  property,  religion,  and  marriage,  and  their  advocacy  of  abolition 
or  destruction  rather  than  modification  of  such  institutions. 


IV.    THE  RESTATEMENT 

RICARDO  had  developed  a  certain  side  of  Adam  Smith's  politi- 
cal economy,  carrying  it  to  its  logical  conclusion.  Malthus 
added  his  theory  of  population ;  Senior  his  abstinence  theory ; 
and  several  writers  contributed  refinements  at  this  or  that  point. 
There  was  still  room,  however,  for  one  who  should  be  broad 
enough  to  survey  the  whole  field  and  fuse  these  various  elements 
into  a  systematic  body  of  doctrine.  In  fact,  there  was  need  for 
a  restatement  of  the  classical  economics :  a  restatement  which 
would  take  into  consideration  the  criticisms  of  the  old  system, 
and  current  conditions ;  one  that  would  at  least  begin  to  realize 
the  insufficiency  of  the  existing  political  economy  in  relation  to 
the  problems  of  modern  society,  and  so  prepare  the  way  for  a 
new  economics.  This  was  the  work  of  John  Stuart  Mill. 


344 


CHAPTER  XXn 
JOHN  STUART  MILL 

IF  Adam  Smith  maybe  called  the  Father  of  Political  Economy, 
John  Stuart  Mill  was  his  chief  heir  in  the  direct  line.  He  it 
was  who,  about  the  middle  of  the  last  century,  combined, 
restated,  and  modified  the  teaching  of  Smith,  Malthus,  and 
Ricardo,  and  so  successfully  that  his  work  has  had  an  effect 
upon  English  thought  second  to  none. 

Writing  at  a  considerably  later  date  than  his  great  predeces- 
sors, Mill  fell  within  the  play  of  new  forces.  As  will  be  seen,  the 
common  characterization  of  his  thought  as  transitionary  is  strik- 
ingly just.  It  is  essential,  then,  to  study  carefully  his  biography, 
to  the  end  that  these  forces  may  be  appreciated. 

Life  and  Works.  —  John  Stuart  Mill  was  born  in  London, 
May  20,  1806.  His  father,  James  Mill,  was  a  man  of  con- 
siderable eminence  as  an  historian,  a  philosopher,  and  a  politi- 
cal economist.  The  most  celebrated  work  written  by  James 
Mill  was  a  History  of  British  India.  He  wrote  also  a  politi- 
cal economy,  which,  though  little  more  than  a  resume  of  the 
work  of  others,  was  of  considerable  influence  with  followers  of 
Ricardo. 

The  education  of  John  Stuart  Mill  was  a  remarkable  and  most 
successful  experiment.  It  was  partly  to  describe  this  experi- 
ment that  Mill  wrote  his  Autobiography.  From  the  earliest 
years  of  his  life,  his  father  trained  him  with  the  intention  of 
making  him  precisely  what  he  became.  Mill  undoubtedly 
exaggerated  the  effects  of  the  education  he  received,  and  under- 
rated his  own  natural  powers;  but  its  influence  was  deep  and 
lasting.  He  could  not  remember  the  time  when  he  began  the 

345 


346  ECONOMIC  THOUGHT 

study  of  Greek,  but  was  told  that  it  was  when  he  was  three  years 
of  age.  In  his  eighth  year  he  began  the  study  of  Latin,  and 
when  twelve,  had  read  some  of  the  chief  classics  in  that  tongue. 
Between  his  seventh  and  tenth  years,  while  living  in  Newington 
Green,  he  was  accustomed  to  take  daily  walks  with  his  father, 
during  which  he  would  give  him  an  account  of  what  he  had 
read  the  preceding  day.  While  reading  he  made  notes  on  slips 
of  paper  and  from  these  prepared  a  narrative.  In  this  manner 
he  read  and  discussed  Robertson's  histories,  Hume,  Gibbon,  Wat- 
son's Philip  II  and  Philip  III,  Hooke's  History  of  Rome,  the  last 
two  or  three  volumes  of  Rollin's  Ancient  History,  the  Lang- 
homes'  translation  of  Plutarch,  Burnet's  History  of  his  own 
Time,  and  the  historical  part  of  the  Annual  Register  from  the 
beginning  to  about  1788.  He  appears  to  have  read  these  works 
voluntarily,  but  his  father  assigned  him  other  books  to  read, 
which  would  not  have  interested  him  sufficiently  to  have  led 
him  to  read  them  of  his  own  accord.1 

It  was  after  he  had  accomplished  this  work  in  Latin,  Greek, 
and  history,  together  with  some  training  in  logic,  and  when  he 
had  already  arrived  at  the  advanced  age  of  thirteen,  that  he 
took  a  complete  course  in  Political  Economy.  This  was  in  1819 ! 
Two  years  before  this  time  Ricardo  had  published  his  treatise 
on  Political  Economy  and  Taxation.  Mill  says  of  this  work: 
"  My  father's  loved  and  intimate  friend,  Ricardo,  had  shortly 
before  published  the  book  which  formed  so  great  an  epoch  in 
political  economy ;  a  book  which  never  wrould  have  been  pub- 
lished or  written  but  for  the  entreaty  and  strong  encourage- 
ment of  my  father;  for  Ricardo,  the  most  modest  of  men, 
though  firmly  convinced  of  the  truth  of  his  doctrines,  deemed 
himself  so  little  capable  of  doing  them  justice  in  exposition  and 
expression,  that  he  shrank  from  the  idea  of  publicity."  2  Ri- 
cardo's  work  was  not  suited  for  use  as  a  textbook,  and  the  elder 

1  Among  such  he  mentions  Millar's  Historical  View  of  the  English  Govern- 
ment, Mosheim's  Ecclesiastical  History,  M'Crie's  Life  of  John  Knox,  Sewel's 
and  Rutty's  Histories  of  the  Quakers ;  Beaver's  African  Memoranda,  Collins' 
Account  of  the  First  Settlement  of  New  South  Wales. 

8  Autobiography,  p.  27. 


JOHN  STUART  MILL  347 

Mill  accordingly  conceived  the  idea  of  writing  one  which  should 
contain  Ricardo's  doctrines.  In  his  walks  he  lectured  to  his 
son  and  made  him  write  out  and  read  the  next  day  an  account 
of  what  had  been  said.  The  notes  thus  prepared  were  used  by 
the  father  in  writing  his  Elements  of  Political  Economy.  After 
this  work  was  completed,  young  Mill  went  through  Ricardo 
with  his  father,  who  questioned  him  and  explained  difficulties 
only  after  the  boy  had  given  the  best  explanation  he  could.  The 
study  of  Adam  Smith  in  the  same  manner  followed  that  of 
Ricardo. 

When  Mill  was  fourteen  years  of  age,  that  is,  in  1820,  he  went 
to  France  and  spent  a  year  there.  While  in  Paris  he  passed  a 
considerable  time  in  the  house  of  Jean  Baptiste  Say.  It  will  be 
thus  seen  that  Mill  was  brought  up  under  such  economic  influ- 
ences as  would  naturally  lead  him  to  a  firm  belief  in  the  doctrines 
of  Adam  Smith,  Mai  thus,  and  Ricardo.1 

Upon  his  return  to  England  in  1821,  when  fifteen  years  old, 
he  began  the  study  of  Roman  and  English  Law.  His  father  put 
into  his  hands  at  the  commencement  of  his  legal  studies  Du- 
mont's  Traite  de  Legislation,  which  contained  an  exposition  of 
the  principal  speculations  of  Jeremy  Bentham,  the  distinguished 
English  jurist  and  founder  of  the  utilitarian  system  of  morals. 
Bentham  was  a  friend  of  his  father's,  and  young  Mill  had  en- 
joyed the  advantage  of  living  with  him  a  part  of  each  of  the  years 
from  1814  to  1817. 

What  Mill  says  of  his  perusal  of  Dumont's  Traite  de  Legis- 
lation is  very  significant,  and  quite  remarkable  when  one  remem- 
bers that  it  is  the  description  of  the  thoughts  and  feelings  of  a 
boy  of  fifteen :  — 

1  Mill  had  undoubtedly  remarkable  advantages.  He  was  surrounded  by 
great  men,  as,  e.g.,  his  father,  his  father's  friends,  Ricardo,  Bentham,  Grote, 
and  John  Austin.  His  own  friends  and  companions  were  Charles  Austin, 
Macaulay,  Hyde,  Charles  Villiers,  Strutt,  afterwards  Lord  Belper,  Romilly, 
afterwards  Lord  Romilly  and  Master  of  the  Rolls,  William  Eyton  Tooke, 
son  of  the  political  economist  who  wrote  the  History  of  Prices,  William  Ellis, 
an  original  investigator  in  political  economy,  George  Graham,  Frederic 
Maurice,,  and  John  Arthur  Roebuck. 


348  ECONOMIC  THOUGHT, 

"  The  reading  of  this  book  was  an  epoch  in  my  life;  one  of  the  turn- 
ing points  in  my  mental  history. 

"  My  previous  education  had  been,  in  a  certain  sense,  already  a  course 
of  Benthamism.  The  Benthamic  standard  of '  the  greatest  happiness ' 
was  that  which  I  had  always  been  taught  to  apply ;  .  .  .  Yet  in  the 
first  pages  of  Bentham  it  burst  upon  me  with  all  the  force  of  novelty. 
What  thus  impressed  me  was  the  chapter  in  which  Bentham  passed 
judgment  on  the  common  modes  of  reasoning  in  morals  and  legisla- 
tion, deduced  from  phrases  like  'law  of  nature,'  'right  reason,'  'the 
moral  sense,'  'natural  rectitude,'  and  the  like,  and  characterized  them 
as  dogmatism  in  disguise,  imposing  its  sentiments  upon  others  under 
cover  of  sounding  expressions  which  convey  no  reason  for  the  senti- 
ment, but  set  up  the  sentiment  as  its  own  reason.  It  had  not  struck 
me  before  that  Bentham's  principle  put  an  end  to  all  this.  The  feel- 
ing rushed  upon  me  that  all  previous  moralists  were  superseded,  and 
that  here,  indeed,  was  the  commencement  of  a  new  era  in  thought.  .  .  . 
When  I  laid  down  the  last  volume  of  the  TraiU,  I  had  become  a  differ- 
ent being.  The  'principle of  utility/  understood  as  Bentham  under- 
stood it,  and  applied  in  the  manner  in  which  he  applied  it  through 
these  three  volumes,  fell  exactly  into  its  place  as  the  keystone  which 
held  together  the  detached  and  fragmentary  component  parts  of  my 
knowledge  and  beliefs.  It  gave  unity  to  my  conceptions  of  things. 
I  now  had  opinions ;  a  creed,  a  doctrine,  a  philosophy ;  in  one  among 
the  best  senses  of  the  word,  a  religion ;  the  inculcation  and  diffusion 
of  which  could  be  made  the  principal  outward  purpose  of  a  life.  And 
I  had  a  grand  conception  laid  before  me  of  changes  to  be  effected  in 
the  condition  of  mankind  through  that  doctrine." 

During  this  "  crisis  "  in  his  mental  history,  also,  Mill  became 
acquainted  with  and  was  admittedly  influenced  by  the  Social- 
istic doctrines  of  the  Saint-Simonian  school.1  In  later  years,  and 

1  See  above,  p.  332.  Since  Mill's  death  in  1873,  Miss  Taylor,  his  step- 
daughter, has  given  to  the  world  the  contents  of  a  manuscript  he  left,  which 
was  the  beginning  of  a  work  on  Socialism.  It  was  published  first  in  the 
Fortnightly  Review  and  has  since  appeared  in  book  form.  In  a  "Prelim- 
inary Notice"  Miss  Taylor  says:  "It  was  in  the  year  1869  that,  impressed 
with  the  degree  in  which  even  during  the  last  twenty  years,  when  the  world 
seemed  so  wholly  occupied  with  other  matters,  the  socialist  ideas  of  specula- 
tive thinkers  had  spread  among  the  workers  in  every  civilized  country, 
Mr.  Mill  formed  the  design  of  writing  a  book  on  Socialism.  Convinced  that 


JOHN  STUART  MILL  349 

before  writing  his  Political  Economy,  he  reacted  from  the  some- 
what extravagant  notions  concerning  the  merits  of  Benthamism. 
His  undoubtedly  deep  emotional  nature,  under  the  influence  of  his 
wife,  led  him  more  and  more  toward  idealistic  Socialistic  beliefs. 

Mill  professed  to  have  obtained  great  assistance  in  his  work 
from  his  wife,  a  Mrs.  Taylor  before  she  married  him.  He  calls 
his  acquaintance  with  her  "  the  most  valuable  friendship  of  my 
life.''  He  probably  goes  too  far  in  ascribing  to  her  all  that  is 
best  in  his  writings,  as  he  does  frequently.  He  thought  his  work 
on  Liberty  destined  to  live  longer  than  any  other  of  his  works 
because  she  had  gone  through  every  sentence  of  it  with  him. 
It  is  doubtful  if  the  majority  of  his  readers  agree  with  him  in 
the  comparative  estimate  he  placed  on  that  work. 

In  1823  Mill  obtained  an  appointment  from  the  East  India  Com- 
pany, in  the  office  of  Examiner  of  India  Correspondence,  finally 
rising  to  the  post  of  Examiner,  in  which  position  he  remained 
as  long  as  the  East  India  Company  existed  as  a  political  body. 
This  was  until  1858.  He  considered  his  office  work  as  on  the 
whole  an  advantage  to  him,  inasmuch  as  it  brought  him  in  con- 
tact with  the  business  world  and  saved  him  from  speculative 
errors  into  which  he  might  have  fallen,  had  he  been  less  ac- 
quainted with  real  life  and  the  motives  by  which  men  are  influ- 
enced. 

Mill  began  to  publish  his  writings  in  1822,  when  sixteen  years 
of  age.  At  first  he  wrote  articles  for  the  newspapers  on  economic 
subjects,  liberty  of  thought  and  speech,  etc.  The  Westminster 
Review  was  founded  in  1824  by  Bentham  as  an  organ  of  Radi- 
calism, and  to  this  Mill  was  a  frequent  contributor.  In  the  fol- 
lowing year  he  was  employed  by  Bentham  to  revise  and  edit 
the  manuscript  for  his  five- volume  work  on  Evidence.  But  he 
continued  to  write  numerous  newspaper  articles  and  essays  for 

the  inevitable  tendencies  of  modern  society  must  be  to  bring  the  questions 
involved  in  it  always  more  and  more  to  the  front,  he  thought  it  of  great 
practical  consequence  that  they  should  be  thoroughly  and  impartially 
considered,  and  the  lines  pointed  out  by  which  the  best  speculatively-tested 
theories  might,  without  prolongation  of  suffering  on  the  one  hand,  or  unneces- 
sary disturbance  on  the  other,  be  applied  to  the  existing  order  of  things." 


350  ECONOMIC  THOUGHT 

magazines,  particularly  for  the  London  and  Westminster  Review, 
of  which  he  was  editor  for  a  time,  and  later  for  the  Fortnightly 
Review.  Five  volumes  of  his  essays  have  appeared  in  book  form, 
with  the  title  Dissertations  and  Discussions. 

The  first  important  book  Mill  published  was  his  System  of 
Logic,  the  first  edition  of  which  appeared  in  1843,  the  ninth  in 
1875.  It  is  regarded  generally  on  the  Continent,  as  also  in  Eng- 
land, as  one  of  the  most  important  works  on  the  subject  ever 
written.  A  collection  of  Essays  on  Some  Unsettled  Questions 
of  Political  Economy  appeared  in  1844,  although  they  had  been 
written  in  1830  and  1831,  and  at  the  time  had  been  declined 
by  a  publisher.  The  Principles  of  Political  Economy  appeared 
early  in  1848.  A  seventh  edition  was  published  in  1871.  The 
following  works  appeared  successively:  On  Liberty,  Consid- 
erations on  Representative  Government,  Utilitarianism,  Exami- 
nation of  Sir  Wm.  Hamilton's  Philosophy,  and  Subjection  of 
Women. 

Mill  was  an  independent  member  of  Parliament  from  1858  to 
1868.  He  used  his  position  to  advocate  advanced  liberal  ideas, 
in  particular  the  suffrage  for  women  and  the  laboring  classes. 
He  also  took  up  the  cause  of  Ireland,  favoring  a  permanent  ten- 
ure at  a  fixed  rent  for  Irish  tenants,  and  brought  out  his  ideas  on 
this  subject  in  a  pamphlet,  entitled  England  and  Ireland,  pub- 
lished in  1868. 

When  one  turns  from  Quesnay,  Turgot,  and  Smith  directly 
to  Mill,  one  at  once  feels  that  a  new  era  has  been  entered.  The 
science  of  economics  has  lost  its  youthful  simplicity  and  naivete. 
It  is  more  elaborated;  many  parts  have  acquired  an  entirely 
different  significance  in  a  new  time  and  under  changed  circum- 
stances. This  corresponds  to  a  changed  environment.  Manu- 
facturing industry  has  made  gigantic  progress  by  the  aid  of 
numerous  inventions,  as  steam  power,  railways,  and  a  minute 
division  of  labor.  The  laborers  are  no  longer  employed  chiefly 
in  the  country  and  scattered  here  and  there,  as  in  Turgot's  time 
and  particularly  in  France,  but  are  crowded  together  in  great 
cities.  Manufactures  are  no  longer  conducted  in  small  work- 
shops, in  which  a  few  journeymen  and  apprentices  labor  side  by 


JOHN  STUART  MILL  351 

side  with  the  master,  but  in  immense  factories,  where  the  capi- 
talist stands  at  the  head  of  hundreds  of  human  beings.  Large 
establishments  begin  to  crowd  out  the  little  man.  Population 
has  grown  rapidly,  and  the  want  of  land  makes  itself  felt.  Real 
estate  owners  take  advantage  of  the  situation  regardless  of  the 
welfare  of  other  classes.  While  Smith,  less  than  a  century 
before,  was  able  to  praise  the  self-sacrificing  generosity  of  the 
landlords  and  farmers  or  country  gentlemen,  the  power  of  gov- 
ernment is  now  appealed  to  for  protection  against  their  self- 
ishness. 

Nature,  too,  is  viewed  in  an  entirely  different  manner  by  Mill. 
In  the  time  of  Turgot  and  Adam  Smith,  she  was  looked  upon 
optimistically  enough  as  a  kind,  benevolent  power.  Jean- 
Jacques  Rousseau  had  found  eager  listeners  and  believers  when 
he  preached  the  doctrine  that  nature  would  make  all  men  happy 
if  free  course  were  only  allowed  her.  Let  nature  alone,  was  the 
cry,  and  all  will  be  well.  In  the  time  of  Mill  she  is  viewed  as  a 
hard  and  heartless  power.  Civilization  is  regarded  as  a  struggle 
against  her  sway.  The  state  ought  to  assist  in  bringing  about  a 
more  equitable  distribution  of  her  "  injustices  and  inequalities." 
There  has  come  the  beginning  of  a  reaction  against  the  idea 
that  man  is  ruled  by  the  environmental  forces  of  nature.  A 
new  organization  of  economic  relations  occupies  the  scene, 
and  this  must  be  kept  in  mind  if  one  would  compare  the  former 
with  the  present  condition  of  things. 

The  Principles  of  Political  Economy.  —  John  Stuart  Mill's 
chief  writing  on  Economics,  as  already  stated,  appeared  in 
1848  under  the  full  title  of  Principles  of  Political  Economy 
with  some  of  their  Applications  to  Social  Philosophy.1  Po- 
litical Economy  he  defines  as  a  science  dealing  with  "  the 
nature  of  Wealth,  and  the  laws  of  its  production  and  dis- 
tribution: including,  directly  or  remotely,  the  operation  of  all 
the  causes  by  which  the  condition  of  mankind,  or  of  any  society 

1  The  book  was  written  during  the  course  of  two  years.  Though  it  went 
through  seven  editions  in  Mill's  lifetime,  it  was  not  thoroughly  revised  and 
freed  from  inconsistency.  For  variation  in  editions  see  article  by  M.  A. 
Ellis  in  Economic  Review,  1906,  pp.  291-302 ;  and  Ashley's  recent  edition. 


352  ECONOMIC  THOUGHT 

of  human  beings,  in  respect  of  this  universal  object  of  human 
desire,  is  made  prosperous  or  the  reverse."  l 

Mill  was  the  first  among  the  leaders  of  English  economic 
thought  to  adopt  an  arrangement  similar  to  that  now  common 
in  our  textbooks :  his  five  books  being  on  Production,  Distri- 
bution, Exchange,  Influence  of  the  Progress  of  Society  on  Pro- 
duction and  Distribution,  and  The  Influence  of  Government. 
In  this  he  follows  in  part  his  father  and  the  French  expositor  of 
Adam  Smith,  J.  B.  Say.2  He  differs  from  both,  however,  in 
abandoning  their  plan  of  devoting  a  distinct  book  to  Consump- 
tion, and  from  Say  in  adding  one  on  Exchange. 

Though  Mill  added  little  to  economic  theory,  his  formulation 
of  the  doctrines  of  his  predecessors,  together  with  certain  illus- 
trations and  applications,  was  such  that  his  book  has  been  a 
leading  authority  till  very  recent  times.  It  is,  therefore,  fitting 
to  discuss  the  essentials  of  his  teaching. 

In  his  introduction  he  distinguishes  national  or  social  wealth 
from  individual  wealth ;  attacks  Mercantilistic  ideas ;  passes  in 
rapid  review  the  various  economic  stages  of  society  as  he  sees 
them ;  refers  to  the  great  inequalities  in  wealth  among  different 
countries,  which  are  partly  due  to  the  non-arbitrary  laws  of  pro- 
duction, and  partly  to  laws  of  distribution,  which  are  of  human 
institution  and  arbitrary.  "  The  laws  of  Production  and  Dis- 
tribution, and  some  of  the  practical  consequences  deducible  from 
them,  are  the  subject  of  the  following  treatise." 

Value.  —  Without  any  attempt  to  develop  his  ideas  in  the 
order  he  adopted,  what  Mill  himself  called  a  fundamental  ques- 
tion, namely  value,  may  at  once  be  taken  up. 

In  answering  this  question  he  immediately  introduces  the 
reader  to  a  threefold  classification  of  commodities.  In  the  first 
class  fall  those  which  are  absolutely  limited,  whose  supply  is  not 
increasable  at  pleasure,  as,  for  instance,  rare  pictures.  Here, 
too,  Mill  includes  labor,  for  short  periods  of  time,  and  articles 
of  international  trade,  and  all  cases  of  monopoly.  In  this  first 

1  Preliminary  Remarks,  paragraph  2. 

2  For  discussion  of  this  subject  see  Cannan,  Production  and  Distribution, 
pp.  32  ff- 


JOHN  STUART  MILL  353 

class  value  depends  upon  demand  and  supply :  "  the  value  which 
a  commodity  will  bring  in  any  market  is  no  other  than  the  value 
which,  in  that  market,  gives  a  demand  just  sufficient  to  carry 
off  the  existing  or  expected  supply."  :  Mill  states  that  by  de- 
mand we  must  mean  "  effective  "  demand,  and  to  make  demand 
and  supply  comparable,  he  takes  them  to  mean  the  quantity 
demanded  and  the  quantity  supplied.  As  his  "  law  of  demand 
and  supply  "  applies  without  modification  to  this  class  alone,  it 
is  important  to  ascertain  what  this  law  is.  "  The  law  is,  that 
the  demand  for  a  commodity  varies  with  its  value,  and  that  the 
value  adjusts  itself  so  that  the  demand  shall  be  equal  to  the 
supply."  2  And  it  was  Mill's  idea  that  where  cost  of  production 
enters  —  as,  he  argues,  it  does  not  in  this  first  class  —  another 
law  controls. 

Assuming,  as  Mill  does,  a  certain  value  to  begin  with,  his 
statement  of  the  law  does  not  satisfy  one  who  desires  to  know 
the  cause  of  value.  It  lacks  an  analysis  of  the  sources  of  de- 
mand.3 The  recognition  of  the  interrelation  of  demand  and 
supply  suggested,  however,  seems  worthy  of  note. 

But  this  first  class  of  commodities  Mill  held  to  be  of  relatively 
little  importance  in  the  theory  of  value.  The  great  bulk  comes 
under  his  second  class :  commodities  which,  being  the  result  of 
"  labor  and  expenditure,"  can  be  increased  in  indefinite  quan- 
tity. Here  Mill  distinguishes  normal  and  market  values,  and 
desires  to  find  a  law  other  than  that  of  demand  and  supply  for 
the  regulation  of  the  former,  —  of  "  permanent  or  average 
values."  At  any  given  time  demand  and  supply  determine 
market  value,  and  they  always  rule  its  oscillations.  But,  where 
goods  are  producible,  there  is  a  minimum  point  set  by  cost  of 
production;  and,  if  they  can  be  indefinitely  multiplied,  the 

1  Bk.  m,  Chap.  II,  §  4.  2  Ibid.,  Chap.  DC,  §  3. 

1  Jevons  criticized  Mill's  theory  as  follows:  "It  [Mr.  Mill's  equation] 
consists  in  stating  that  the  quantity  x  given  by  A  is  equal  to  the  quantity  x 
received  by  B.  But  this  must  necessarily  be  the  case  if  any  exchange  takes 
place  at  all.  The  theory  of  value,  as  expounded  by  Mr.  Mill,  fails  to  reach 
the  root  of  the  matter,  and  show  how  the  amount  of  demand  or  supply  is 
caused  to  vary."  (Theory  of  Political  Science,  1871,  p.  102.) 

2A 


354  ECONOMIC  THOUGHT 

minimum  is  also  a  maximum.1  This  is  the  normal  value  point. 
Goods  whose  costs  or  production  are  the  same  must  have  the 
same  exchange  value.  In  class  two,  then,  there  is  "  a  superior 
force  which  makes  value  gravitate  towards  cost  of  Production,"  2 
—  the  tendency  of  supply  to  increase  to  the  point  of  lowest 
profitable  production.  To  put  it  in  another  way,  there  is  a 
"  latent  influence  "  which  makes  values  conform  in  the  long  run 
to  the  cost  of  production.  This  is  the  variation  which  would 
otherwise  take  place  in  supply :  if  a  good  sells  above  the  "  ratio 
of  its  cost  of  production,"  its  supply  would  increase,  and  vice 
versa. 

Thus  the  value  of  reproducible  commodities  does  not  depend 
on  mere  demand  and  supply,  except  when  there  is  disturbance, 
and  pending  the  adjustment  of  supply  to  demand. 

This  is  clearly  an  undue  emphasis  of  supply.  Supply  is 
spoken  of  almost  as  a  metaphysical  entity.  The  influence  of 
variation  in  demand  is  slighted.  In  case  of  a  fluctuation,  for 
example,  the  modus  operandi  runs  thus :  (i)  "  Natural  "  (nor- 
mal) value  equals  cost  of  production  plus  profits ;  (2)  there  is  a 
certain  demand  for  a  certain  quantity  at  this  value;  (3)  to 
this  demand  the  supply  endeavors  to  conform,  —  "  the  perma- 
nent tendency  of  supply  is  to  conform  itself  to  the  demand 
which  is  found  by  experience  to  exist  for  the  commodity  when 
selling  at  its  normal  value." 

But  what  are  costs  of  production?  Mill  inclines,  though  not 
consistently,  to  take  the  entrepreneur's  point  of  view,  and  in- 
cludes wages  and  usual  profits.  In  this  he  accepts  Senior's 
analysis.  He  agrees  with  Ricardo  so  far  as  to  say  that  the  rel- 
ative value  of  commodities  depends  principally  on  the  quantity 
of  labor,3  and  that  in  variations  of  value  the  quantity  of  labor 
is  most  important ; 4  but  insists  that  quantity  and  remuneration 
must  both  be  considered.  As  to  rent,  with  certain  minor  ex- 
ceptions, it  is  not  a  part  of  costs. 

Concerning  the  third  class  of  commodities,  those  which,  like 

1  Bk.  Ill,  Chap.  Ill,  §  2.     Free  competition  assumed. 

1  Ibid.,  last  paragraph. 

3  Ibid.*  Chap.  IV,  §  i.  ,  4  Ibid.,  §  3. 


JOHN  STUART  MILL  355 

agricultural  produce,  may  be  increased  in  supply  indefinitely, 
but  only  by  a  more  than  proportionate  increase  in  cost,  Mill 
says  little.  And  a  discussion  of  the  significance  of  increasing 
returns  to  value  will  be  sought  for  in  vain.  This  class  stands 
midway  between  the  others,  value  being  determined  at  the  point 
where  costs  of  producing  the  needed  supply  are  greatest. 
I  Mill's  was  an  objective  exchange  theory.  Cost  of  production 
working  through  supply  was  the  basis  of  it.  But  it  was  not  a 
labor-cost  theory ;  and  he  made  several  exceptions  to  cost  deter- 
mination, so  as  to  cover  cases  in  which  custom  restricts  or  costs 
are  joint.  Its  great  weakness  lies  in  the  absence  of  analysis  of 
the  forces  lying  back  of  demand  and  supply,  a  difficulty  which  a 
follower  meets  by  introducing  demand  price  schedules  and  supply 
price  schedules.1 

The  Shares  in  Distribution  in  a  Static  Society.  —  As  to  the  de- 
termination of  rent,  Mill  was  substantially  in  accord  with 
Ricardo.  The  rent  which  any  land  will  yield  with  a  given  em- 
ployment of  capital  is  the  excess  of  its  produce,  beyond  what 
would  be  returned  to  the  same  capital  if  employed  on  the  worst 
land  in  cultivation,  situation  being  considered.  Even  if  all  land 
yielded  rent,  there  would  always  be  an  intensive  margin,  and  some 
agricultural  capital  which  paid  no  rent.  Mill  suggests  that  in 
cases  where  there  is  an  alternative  use,  or  "  scarcity  values  " 
exist,  rent  may  enter  price.2 

He  often  regards  the  landowner  somewhat  as  did  Adam  Smith : 
his  "  exclusive  power  "  over  natural  agencies  is  emphasized ; 
"  rent  is  the  effect  of  a  monopoly  "  and  "  the  reason  why  land- 
owners are  able  to  require  rent  for  their  land,  is  that  it  is  a  com- 
modity which  many  want,  and  which  no  one  can  obtain  but  from 
them."  But,  again,  perhaps  following  Senior,  he  states  that  the 
landowner  has  no  true  monopoly,  inasmuch  as  any  one  may 
buy  land.  Mill  does  not  so  strongly  assert  that  the  interests 
of  the  landowner  are  opposed  to  those  of  society  as  did  Ricardo, 

1  Marshall,  Principles  of  Economics. 

2  For  a  discussion  and  criticism  see  Haney,  "  Rent  and  Price :    '  Alterna- 
tive Uses'  and  'Scarcity  Value,"'  Quart.  Jr.  Econ.,  XXIV  (November, 
1910). 


356  ECONOMIC  THOUGHT 

but  he  emphasizes  the  point  that  "  the  interest  of  the  landlord 
is  decidedly  hostile  to  the  sudden  and  general  introduction  of 
agricultural  improvements."  l 

Wages  are  determined  according  to  a  sort  of  devitalized  wages- 
fund  doctrine.  In  ordinary  circumstances,  he  says,  we  may 
speak  of  wages  as  being  determined  by  competition  or  the  de- 
mand and  supply  of  labor.  This  may  be  expressed  as  the  pro- 
portion between  population  and  capital,  if  we  understand  by 
population  only  those  who  receive  wages,  and  by  capital  that 
devoted  to  wage  payment.  Such  capital  consists,  Mill  says, 
of  that  part  of  circulating  capital  paid  in  wages,  and  funds 
paid  to  soldiers,  servants,  and  other  "  unproductive  "  laborers. 
Obviously  this  statement  of  the  case  is  little  more  than  a  mere 
truism. 

There  is  little  direct  evidence  in  the  Principles  of  Political 
Economy  that  Mill  held  to  the  idea  of  a  rigid  wages  fund.  A 
few  passages  indicate  such  an  idea,2  but  it  was  not  carefully 
analyzed,  nor  were  its  consequences  thoroughly  understood. 
Probably  he  would  not  have  defended  it  so  far  as  the  long  run  is 
concerned.  But  lie  thought  a  rise  of  wages  in  one  trade  would 
necessarily  mean  an  immediate  deterioration  in  some  other,  and 
that  some  time  must  elapse  before  an  adjustment  could  take 
place.3  Later,  in  1869,  under  criticism  by  Longe  and  Thornton, 
Mill  made  his  celebrated  recantation  of  the  wages-fund  idea.4 

In  connection  with  Mill's  use  of  the  wages-fund  idea,  his  belief 
in  the  Malthusian  principle  of  population  should  be  recalled. 
This  principle  he  strongly  emphasized,  and  his  discussion  of 
wages  is  influenced,  no  doubt,  by  a  desire  to  show  that,  accord- 
ing to  the  fund  idea,  a  limitation  of  population  was  practically 
necessary  to  obtain  better  wages. 

Profits  are  closely  related  to  wages.     Mill  cites  Senior's  absti- 

1  Bk.  IV,  Chap.  Ill,  §  4. 

*  Bk.  I,  Chap.  V,  §  9;  and  notably  Bk.  II,  Chap.  XII,  §  i,  last  para- 
graph. 

3  Political  Economy,  Bk.  V,  Chap.  X,  §  5. 

4  For  discussion  of  this  whole  subject,  together  with  some  justification 
of  a  wages-fund  theory,  see  Taussig,  Wages  and  Capital. 


JOHN  STUART  MILL  357 

nence  idea1  with  approval,  and  then  explains  that  abstinence 
is  but  a  part  of  the  cost  covered  by  "  gross  profits."  Besides 
interest,  which  is  the  usual  name  for  that  part  of  profits  received 
for  abstinence,  "  gross  profits  "  includes  wages  of  superintend- 
ence and  indemnity  for  risk :  it  is  the  entrepreneur-capitalist's 
net  income,  —  his  surplus  after  paying  wages.  Mill  states  that 
no  practical  error  results  from  disregarding  rent  in  this  case. 

The  amount  of  the  entrepreneur-capitalist's  gross  produce  , 
depends  upon  the  productive  power  of  labor.2  From  this  he 
makes  advances  in  the  shape  of  wages.2  The  rate  of  profit, 
then,  depends  on  the  proportion  of  the  produce  of  labor  obtained 
by  the  laborers  themselves.  "  We  thus  arrive  at  the  conclusion 
of  Ricardo  and  others,  that  the  rate  of  profits  depends  upon 
wages ;  rising  as  wages  fall,  and  falling  as  wages  rise."  3 

Mill,  however,  would  modify  this  formula  to  the  slight  extent 
of  substituting  the  phrase  "  cost  of  labor  "  for  "  wages,"  his 
ground  being  that  real  wages  is  only  one  of  several  factors  deter- 
mining the  employer's  "  advances,"  the  others  being  price  of 
subsistence  and  efficiency  of  labor.  To  the  capitalist,  cost  of 
production  is  not  labor,  but  wages,  "  and  since  wages  may  be 
either  greater  or  less,  the  quantity  of  labour  being  the  same, 
it  would  seem  that  the  value  of  the  product  cannot  be  deter- 
mined solely  by  the  quantity  of  labour,  but  by  the  quantity 
together  with  the  remuneration ;  and  that  values  must  partly 
depend  on  wages."  4 

In  his  discussion  of  profits  Mill  shows  some"traces  of  an  influ- 
ence by  Senior ;  but,  on  the  whole,  his  thought  is  based  on  Ri- 
cardo. He  generally  regards  capital  as  advances  to  laborers, 
chiefly  in  the  shape  of  food  or  sums  for  purchasing  food.  Though 

1  See  above,  p.  265. 

1  "But  materials  and  implements  are  produced  by  labour;  ...  in  the 
whole  process  of  production,  beginning  with  the  materials  and  tools  and 
ending  with  the  finished  product,  all  the  advances  have  consisted  of  nothing 
but  wages ;  except  that  certain  of  the  capitalists  concerned  have,  for  the  sake 
of  general  convenience,  had  their  share  of  profit  paid  to  them  before  the 
operation  was  completed.  Whatever,  of  the  ultimate  product,  is  not  profit, 
is  repayment  of  wages."  (Bk.  II,  Chap.  XV,  §  5.) 

»  Bk.  II,  Chap.  XV,  §  6.  *  Bk.  Ill,  Chap.  IV,  §  2. 


358  ECONOMIC  THOUGHT 

he  explicitly  places  capital  with  labor  and  land  as  a  factor  in 
production,  he  reduces  it  to  stored-up  labor  in  resolving  all 
expenses  into  wages,  and  his  recognition  of  its  distinctness  in 
production  is  at  times  halting.  This  is  inconsistent  with  his 
recognition  of  the  abstinence  basis  for  profits.  In  a  word,  here 
is  found  an  illustration  of  Mill's  imperfect  fusing  of  diverse  ideas. 
If  Mill  had  taken  Senior's  suggestion  and  treated  interest  sepa- 
rately, not  trying  to  lump  it  together  with  insurance,  and  espe- 
cially with  wages  of  superintendence,  progress  might  have  been 
made.  He  was,  however,  too  much  under  the  influence  of  his 
early  training  in  Smith  and  Ricardo.1 

The  foregoing  comprises  the  chief  points  in  Mill's  theory  of 
value  and  distribution.  Aside  from  exposition  and  illustration, 
he  adds  little  to  the  framework  of  economic  theory.  His  treat- 
ment of  value  is  far  in  advance  of  Ricardo's,  however,  and  his 
discussion  of  the  relation  of  wages  to  profits,  while  weak,  is  also 
an  improvement. 

Consumption  and  Production.  —  On  the  relation  of  consump- 
tion to  production,  there  was  much  confusion  in  the  classical 
economics,  and  Mill  was  no  exception  to  the  rule.  He  denied  a 
distinct  place  to  consumption,  and  gave  no  book  or  chapter  to  the 
subject.  The  idea  of  utility,  which  forms  the  heart  of  the  recent 
theory  of  consumption  and  value,  he  was  content  to  leave  with 
a  sweeping  general  recognition  that  it  was  essential  to  exchange 
value.  It  is  in  connection  with  his  treatment  of  capital  and  the 

1  Bohm-Bawerk  is  astray  in  stating  that  Mill  gives  three  inconsistent 
answers  to  the  question,  'whence  comes  profit'?  (Capital  and  Interest, 
Smart's  translation,  p.  408.)  Bohm-Bawerk  fails  to  distinguish  between 
possibility  and  necessity.  Mill  would  not  have  thought  of  calling  his  ad- 
mission of  productivity  to  capital  a  "theory."  Productivity,  like  utility 
in  value,  makes  a  return  possible;  but  what  "determines" ?  This  was  the 
question.  The  other  was  assumed.  Mill  consistently  holds  that  the 
interest  element  in  "gross  profits"  is  payment  for  cost  of  abstinence.  This 
makes  a  certain  payment  necessary.  As  to  Bohm-Bawerk's  discovery  of 
an  exploitation  theory  in  Mill,  it  is  illusory.  He  does  not  note  the  distinc- 
tion between  replacement  and  reward.  As  the  result  of  a  round  of  produc- 
tion (Mill's  statement  in  this  passage  is  incomplete  in  imputing  production  to 
labor  alone)  the  advances  of  the  capitalist  are  more  than  replaced,  thus  making 
possible  a  reward  for  abstinence.  On  this  point  see  Bk.  II,  Chap.  II,  §  i- 


JOHN  STUART  MILL  359 

wages  fund  that  the  confusion  just  referred  to  is  most  apparent ; 
for  here  Mill  attempts  to  prove  the  "  theorem  "  x  that  "  demand 
for  commodities  does  not  in  any  manner  constitute  a  demand 
for  labour."  2  His  idea  at  this  point  is  that  the  demand  for  labor | 
is  constituted  by  capital  —  the  wages  fund  —  and  that  a  change 
in  consumption  only  modifies  the  direction  of  this  already 
existing  demand ;  and  through  several  pages,  he  struggles  and 
twists  and  turns  in  the  vain  effort  to  disprove  the  simple  fact 
that  wants  form  the  mainspring  of  economics  and  that  the  inten- 
sity and  variety  of  consumers'  demands  acts  effectively  upon 
production  and  wages.3  In  fact,  the  payment  of  wages  itself 
may  be  regarded  as  buying  the  utilities  produced  by  labor. 

In  a  notable  chapter  on  Excess  of  Supply  which  appears  in  his 
book  on  Exchange,  Mill  expounds  some  other  phases  of  the  rela- 
tion of  consumption  to  production  which  he  had  pointed  out  in 
his  Essays.  He  argues  that,  contrary  to  the  belief  of  Malthus, 
Chalmers,  and  Sismondi,  a  general  oversupply  or  glut  is  impos- 
sible. Partial  gluts  exist,  and  may  temporarily  become  general ; 
but  are  then  not  due  to  oversupply,  but  to  an  excess  of  specula- 
tion leading  to  a  collapse  of  credit.  In  this  he  follows  Say  and 
his  father,  James  Mill ;  but  his  development  of  the  doctrine  is  an 
addition  to  the  Ricardian  scheme. 

International  Trade.  —  Another  contribution   of   Mill's   was  , 
his  development  of  the  Ricardian  theory  of  international  trade,  \ 
and  especially  its  value  aspect.4    Following  Ricardo,  his  conclu- 
sion was  that  it  is  not  difference  in  absolute  costs  of  production, 
but  in  comparative  costs,  which  determines  international  ex- 
change.    If  English  cloth  and  corn  both  cost  150  days'  labor, 

1  "Truth,"  before  3d  ed.  *  Principles,  Bk.  I,  Chap.  V,  §  9. 

3  But  Mill  himself  says  (Bk.  I,  Chap.  X,  §  i)  that  production  is  "stim- 
ulated not  only  by  the  desire  of  the  producers  to  augment  their  means  of 
consumption,  but  by  the  increasing  number  of  the  consumers."     It  appears 
to  be  a  mistaken  idea  of  capital,  its  importance  and  relation  to  wages,  that 
led  him  into  error. 

4  This  was  done  in  the  first  of  his  Essays  on  Some  Unsettled  Questions  of 
Political  Economy  (published  1844).     Mill's  chief  dogmatic  contributions 
appear  in  these  essays.    The  subject  is  treated  in  Bk.  Ill,  Chaps.  XVII 
and  XVIII,  of  the  Principles. 


360  ECONOMIC  THOUGHT 

and  Polish  cloth  and  corn  both  cost  100  days'  labor,  there  will 
be  no  exchange;  but  if  England's  corn  cost  200  days'  labor,  it  will 
pay  her  to  buy  that  commodity  from  Poland. 

All  this  was  substantially  Ricardo's  doctrine.  But  Mill  went 
farther  than  his  predecessor  in  reasoning  that  the  law  that  per- 
manent value  is  determined  by  cost  of  production  does  not  hold 
for  foreign  commodities.  The  value  of  such  commodities  de- 
pends rather  upon  the  cost  of  producing  the  goods  exchanged 
for  them.1  Capital  does  not  move  readily  from  one  nation  to 
another;  but  may  remain  in  a  country  having  no  advantages 
to  production,  and  cause  foreign  trade  to  exist.  In  other  words, 
international  values  obey  a  law  of  "  equation  of  international 
demand  "  :  "  There  is  some  proportion  at  which  the  demand 
of  the  two  countries  for  each  other's  products  will  exactly  cor- 
respond; so  that  the  thing  supplied  .  .  .  will  be  completely 
paid  for,  and  no  more  .  .  .  "  2  "  Supply  and  demand  are,"  in 
this  case,  "  but  another  expression  for  reciprocal  demand." 

Mill  points  out  admirably  the  various  advantages  flow- 
ing from  an  extended  international  trade,  the  saving  in  prices 
to  consumers  being  the  great  point.  Accordingly,  certain  "  vul- 
gar "  Mercantilistic  notions,  namely  that  a  market  for  surplus 
products  exported  is  the  benefit,  and  that  the  national  gain  from 
commerce  comes  in  the  shape  of  profits  to  merchants,  are 
disposed  of.  In  this  connection  Adam  Smith  is  criticized  as 
not  being  entirely  free  from  error. 

In  criticism  of  Mill's  idea  of  international  value,  one  notes  that 
he  is  wrong  in  believing  that,  in  any  ultimate  sense,  the  cost  of 
production  in  the  other  country  does  not  enter.  If  the  cost 
of  the  things  exported  be  taken  to  enter,  the  question  re- 
mains, "what  determines  how  much  must  be  exported?"  As 
elsewhere,  Mill  here  shows  the  undigested  character  of  his  theory 
as  a  whole.  He  does  not  bring  his  reasoning  sufficiently  into 
relation  with  his  general  theory  of  value.  He  makes  a  difference 
in  degree  appear  as  though  it  were  one  in  kind. 


1  Mill  here  means,  not  entrepreneurs'  outlays,  but  real  costs. 

2  Bk.  Ill,  Chap.  XVIII,  §  5. 


JOHN  STUART  MILL  361 

The  Influence  of  Progress  on  Distribution  in  Dynamic  Society,  — 
In  Book  IV  Mill  treats  of  the  Dynamics  of  Distribution ; 
but  he  contributes  little  to  Ricardo's  ideas,  so  far  as  economic 
principles  are  concerned.  It  is  here  that  he  most  plainly 
shows  the  influence  of  Comte.  After  describing  the  elements 
of  industrial  progress,  invention,  security,  business  capacity, 
united  action,  and  other  factors  which  give  man  greater  control 
over  nature,  he  proceeds  to  show  that  prices  of  agricultural  prod- 
uce tend  to  rise,  while  a  tendency  to  perpetual  increase  of  the 
productive  power  of  labor  in  manufacture  causes  manufactured 
articles  to  fall  in  price.  The  rent  of  land  increases;  money 
wages  rise ;  the  rate  of  profits  falls. 

In  spite  of  industrial  progress,  the  increase  of  laborers  is  ordi- 
narily such  that  a  greater  population  has  been  enabled  to  live 
the  same  life  of  drudgery  and  imprisonment.  "  Only  when,  in 
addition  to  just  institutions,  the  increase  of  mankind  shall  be 
under  the  deliberate  guidance  of  a  judicious  foresight,  can  the 
conquests  made  from  the  powers  of  nature  .  .  .  become  the  com- 
mon property  of  the  species.  .  .  ."  1 

In  the  last  chapter  in  Book  IV,  "  On  the  Probable  Futurity  of 
the  Laboring  Classes,"  he  wishes  to  fix  attention  upon  improve- 
ment in  distribution  and  a  larger  remuneration  of  labor  as  the 
desiderata.2  These  ends  may  be  achieved  by  a  voluntary  con- 
trol of  population  arising  with  better  education  and  the  opening 
of  employment  to  women,  and  by  "  a  more  and  more  complete 
realization  of  the  ends  which  Socialism  aims  at,  not  neglecting 
its  means  so  far  as  they  can  be  employed  with  advantage."  3  He 
advocates  "  organization  of  industry  "  along  the  lines  of  Le- 
Claire's  profit-sharing  plan. 

Mill  held  that,  ultimately,  in  spite  of  unlimited  progress  in 
the  arts,  a  stationary  state  must  be  reached.  In  such  a  state 

1  Bk.  IV,  Chap.  VI,  last  paragraph. 

2  It  is  to  be  remembered  that  this  chapter  was  largely  affected  by  his  wife 
and  by  his  later  interest  in  radical  social  reform.     On  the  whole,  its  tone  is 
very  different  from  the  main  body  of  the  work,  which  was  drawn  from 
Ricardian  thought,  somewhat  influenced  by  Comte.     It  might  almost  be 
regarded  as  a  sort  of  appendix  inserted  in  his  hastily  written  volume. 

8  §5- 


362  ECONOMIC  THOUGHT 

increase  in  material  production  and  in  population  would  be  at 
a  stand.  Another  result  would  be  a  minimum  rate  of  profits ; 
and  one  of  the  most  interesting  points  in  the  Principles  is  the 
discussion  of  the  "  tendency  of  profits  to  a  minimum." 

Why?  What  minimum?  When ?  one  asks.  Mill  argues  that, 
were  it  not  for  the  opening  of  new  outlets,  the  expansion  of 
capital  which  accompanies  the  progressive  state  would  soon 
reach  a  limit,  and  capital  receive  the  rate  which  would  be  the 
lowest  that  would  induce  people  to  accumulate  savings  and 
employ  them  productively.  Two  forces  cause  this  expansion  : 
a  diminution  of  risk,  and  increase  in  providence.  Accordingly, 
"  when  a  country  has  long  possessed  a  large  production,  and 
a  large  net  income  to  make  savings  from,  ...  it  is  one  of  the 
characteristics  of  such  a  country  that  the  rate  of  profit  is  habit- 
ually within,  as  it  were,  a  hand's  breadth  of  the  minimum."1 

But,  so  far,  this  idea  of  a  stationary  state  and  minimum 
profits  might  have  come  from  the  Wealth  of  Nations.  Mill's 
reasoning  is  not  based  on  a  mere  competition  among  capitals, 
however,  but  on  Ricardian  ground.  As  capital  increases,  labor 
would  or  would  not  increase.  If  it  did,  poorer  investments  of 
agricultural  capital  would  become  necessary ;  the  price  of  sub- 
sistence would  rise ;  so  with  money  wages ;  and,  as  a  result,  the 
rate  of  profits  would  fall.  If  population  did  not  increase,  there 
would  be  a  greater  capital  to  divide  among  laborers,  and  wages 
would  rise,  with  the  same  result. 

This  last  conclusion  is  based  upon  the  assumption  that  al- 
though "  capital  "  increases,  "  there  would  not  be  any  increase 
of  the  produce,"  —  an  assumption  possible  only  if  by  increase 
in  capital  is  meant  wages-fund  capital  in  the  shape  of  subsist- 
ence. This  assumption  appears  quite  unreasonable  when  Mill's 
own  emphasis  of  invention  and  "  comity  of  action  "  are  recalled. 

Mill  on  the  "  Social  Question."  —  A  point  has  now  been 
reached  at  which  Mill's  views  on  what  may  be  called  the  Social 
Problem  may  well  be  discussed.2 

1  Bk.  IV,  Chap.  IV,  §  4.    Mill  excepts  countries  having  large  reserves 
of  land. 

2  Lange,  /.  S.  Mill's  Ansichten  iiber  die  sociale  Frage. 


JOHN  STUART  MILL  363 

Two  questions  are  to  be  answered.  What  is  the  problem  con- 
tained in  the  Social  Question?  What  is  the  office  of  govern- 
ment in  respect  to  its  solution?  This  problem,  perhaps  the 
weightiest  of  our  time,  is  also  an  important  one  in  connection 
with  political  economy.  But  it  is  the  same  problem  as  that  of 
utilitarianism.  Without  understanding  Mill's  utilitarian  prin- 
ciples, it  is  quite  impossible  to  comprehend  his  political  economy. 
In  his  utilitarianism  alone  is  unity  to  be  found  in  Mill,  a  unity 
of  purpose. 

What  is,  then,  the  problem  of  utilitarianism  ?  It  is  to  increase 
the  entire  sum  total  of  human  happiness.  Happiness,  in  the 
best  utilitarianism,  includes  all  elements  of  well-being :  the  great- 
est amount  of  material  wealth,  still  more  of  physical,  spiritual, 
and  moral  welfare,  associated  with  the  least  possible  suffering, 
—  the  same  problem  which  confronts  us  in  the  social  question. 
That  does  not  mean  either  the  happiness  of  laborers  alone  or 
of  the  higher  classes  alone.  If  a  renunciation  of  pleasure  on  the 
part  of  one  class  brings  with  it  an  increase  in  the  total  amount 
of  happiness,  this  renunciation  is  justified,  and  ultimately  so, 
even  if  it  is  a  compulsory  renunciation.  Not  the  present  alone, 
however,  but,  so  far  as  we  can  judge  beforehand,  the  entire 
future,  is  to  be  taken  into  consideration.  ^If  it  is  proved,  or  if 
it  is  probable,  that  private  property  will  in  the  end  contribute 
to  the  happiness  of  mankind,  this  institution  is  to  be  maintained 
on  that  account.^ 

This  seems  to  be  Mill's  belief,  or  rather  it  is  the  belief  which 
he  expresses  in  his  political  economy.  As  already  noticed,  Mill's 
belief  underwent  a  change  in  after  life ;  and  to  make  the  matter 
of  his  final  opinions  still  more  uncertain,  it  is  mentioned  in  one 
place  in  his  Autobiography,  that  he  did  not  always  speak  out 
his  whole  mind,  but  only  said  what  he  thought  the  public  could 
bear.  The  passage  referred  to  is  this :  "In  the  '  Principles  of 
Political  Economy  '  these  opinions  (on  Socialism)  were  pro- 
mulgated, less  clearly  and  fully  in  the  first  edition,  rather  more 
so  in  the  second,  quite  unequivocally  in  the  third.  The  differ- 
ence arose  partly  from  the  change  of  times,  the  first  edition 
having  been  written  and  sent  to  press  before  the  French  Revo- 


364  ECONOMIC  THOUGHT 

lution  of  1848,  after  which  the  public  mind  became  more  open 
to  the  reception  of  novelties  in  opinion,  and  doctrines  appeared 
moderate  which  would  have  been  thought  very  startling  a  short 
time  before.  In  the  first  edition  the  difficulties  of  Socialism  were 
stated  so  strongly  that  the  tone  was  on  the  whole  that  of  op- 
position to  it.  In  the  year  or  two  which  followed,  much  time 
was  given  to  the  study  of  the  best  socialistic  writers  on  the  Con- 
tinent, and  to  meditation  and  discussion  on  the  whole  range  of 
topics  involved  in  the  controversy ;  and  the  result  was  that  most 
of  what  had  been  written  on  the  subject  in  the  first  edition  was 
cancelled,  and  replaced  by  arguments  and  reflections  which 
represent  a  more  advanced  opinion." 

i  As  already  indicated,  the  whole  question  of  private  property, 
according  to  Mill,  is  at  bottom  one  of  utility.  If  communism 
could  be  shown  to  minister  to  the  happiness  of  society  as  a  whole 
better  than  the  system  of  private  property  now  in  vogue,  it 
ought  to  be  adopted.  Which  system  carries  with  it  the  greater 
amount  of  happiness  ?  The  answer  to  this  question  is  the  solu- 
tion of  the  problem.  To  be  considered  are  historical  experiences, 
all  motives  which  have  influenced  and  which  might  influence 
men  under  different  social  systems,  all  effects  of  society  on  the 
individual,  of  the  individual  on  society,  and  a  host  of  facts  and 
forces.  The  calculation  of  probabilities  is  always  difficult,  but 
nowhere  more  so  than  in  this  case. 

Now  in  the  discussion  of  the  social  question  the  theory  of 
population  plays  an  important  role,  and  a  pause  must  be  made 
here  to  consider  Mill's  position  in  regard  to  Malthusianism. 

Mill  accepts  the  doctrine  of  Malthus  substantially  as  he  found 
it  taught  hi  the  writings  of  the  latter._  He  agrees  with  Malthus 
in  the  doctrine  of  preventive  and  positive  checks  to  population, 
but  goes  farther  than  Malthus  did  in  the  advocacy  of  preventive 
checks.  He  dwells  particularly  upon  the  sin  of  calling  human 
^beings  into  the  world  without  having  the  means  to  support  them. 
He  wishes  to  strengthen  the  feeling  of  responsibility  in  parents 
and  to  spread  among  the  people  an  understanding  of  the  conse- 
quences of  overpopulation.  "  Poverty,  like  most  social  evils," 
says  he,  "  exists  because  men  follow  their  brute  instincts,  with- 


JOHN  STUART  MILL  365 

out  due  consideration.  But  society  is  possible  precisely  because 
man  is  not  necessarily  a  brute." 

A  little  farther  on  he  makes  use  of  this  strong  language,  in 
which  he  would  probably  find  few  to  agree  with  him.  "  Little 
improvement  can  be  expected  in  morality,  until  the  producing 
of  large  families  is  regarded  with  the  same  feelings  as  drunken- 
ness or  any  other  physical  excess.  But  while  the  aristocracy 
and  clergy  are  foremost  to  set  the  example  of  this  kind  of  in- 
continence, what  can  be  expected  from  the  poor?  .  .  .  One 
would  imagine  that  children  rained  down  on  married  people 
direct  from  heaven ;  that  it  was  really,  as  the  common  phrases 
have  it,  God's  will  and  not  their  own,  which  decided  the  number 
of  their  offspring."  *• 

It  is,  then,  clear  that  above  all  things  legislation  must  not 
weaken  the  feeling  of  responsibility  in  begetting  children,  but 
must  strengthen  it.  In  connection  herewith  Mill  explains  the 
ground  of  his  objection  to  a  legal  minimum  of  wages.  It  would 
remove  all  the  barriers  which  now  oppose  overpopulation; 
until  finally  this  world  with  its  human  race  would  resemble  a 
great  ant-hill  or  a  beaver  colony.  Such  an  interference  of  the 
state  would,  therefore,  be  productive  of  harm  onlyj 

It  must  not  be  imagined  that  Mill  had  any  a  priori  objection 
to  such  interference  of  government.  If  the  matter  concerned 
the  present  generation  only,  he  maintains  that  it  would  be  pos- 
sible to  employ  all  and  to  establish  a  minimum  of  wages.  "  So- 
ciety mainly  consists,"  he  says,  "  of  those  who  live  by  bodily 
labor,  and  if  society,  that  is,  if  the  laborers  "  (is  this  an  identi- 
fication of  laborers  and  society  ?)  "  lend  their  physical  force  to 
protect  individuals  in  the  enjoyment  of  superfluities,  they  are 
entitled  to  do  so,  and  have  always  done  so,  with  the  reservation 
of  a  power  to  tax  those  superfluities  for  purposes  of  public 
utility ;  among  which  purposes  the  subsistence  of  the  people  is 
the  foremost.  Since  no  one  is  responsible  for  having  been  born, 
no  pecuniary  sacrifice  is  too  great  to  be  made  by  those  who  have 
more  than  enough,  for  the  purpose  of  securing  enough  for  all 
persons  already  in  existence.  But  it  is  another  thing  altogether, 
*  Bk.  II,  Chap.  XIII,  §  i. 


366  ECONOMIC  THOUGHT 

when  those  who  have  produced  and  accumulated  are  called  upon 
to  abstain  from  consuming,  until  they  have  given  food  and 
clothing,  not  only  to  all  who  now  exist,  but  to  all  whom  these  or 
their  descendants  may  think  fit  to  call  into  existence."  That 
would,  according  to  Mill,  as  already  stated,  reduce  us  to  the  con- 
dition of  ants  in  an  ant-hill. 

But  the  state  has  by  no  means  solved  the  social  problem, 
when  it  has  found  means  to  prevent  starvation.  A  rise  of  wages 
is  not  occasioned  thereby,  nor  a  fall  of  wages  prevented.  The 
purpose  aimed  at  is  higher  wages,  since  the  present  condition 
of  affairs  is  intolerable. 

Passages  have  been  quoted  indicating  that  Mill  would  prefer 
communism  to  an  unimproved  continuance  of  our  present  sys- 
tem. But  the  choice  does  not  lie  between  the  continuance  of 
our  present  system  without  improvement  and  communism,  in- 
asmuch as  it  is  possible  to  better  the  actual  condition  of  things. 
The  first  measure  to  be  introduced  is  universal  education.  The 
laborers  lack  the  means  and  the  will  to  provide  for  the  education 
of  their  class ;  the  state  must  care  for  the  schools.  The  instruc- 
tion provided  by  the  state  should  be  thoroughly  practical  in  its 
character,  aiming  to  develop  sound  common  sense,  good  judg- 
ment; an  understanding  of  surrounding  circumstances. 

Besides  schools,  a  participation  in  political  affairs  is  an  im- 
portant and  necessary  means  of  educating  the  people.  Every 
adult  should  have  the  right  of  suffrage  under  the  sole  condition 
of  demonstrating  that  he  has  improved  the  advantages  of  edu- 
cation offered  him.  Taking  an  active  part  in  politics  is  the  first 
thing  in  modern  times  which  accustoms  the  mind  to  more  ex- 
tended interests  and  views  than  those  merely  personal,  the  first 
step  taken  outside  of  individual  and  family  selfishness.1 

1  Dissertations  and  Discussions,  Vol.  Ill,  "Thoughts  on  Parliamentary 
Reform." 

The  German  economist,  J.  H.  von  Thiinen,  demanded  universal  education 
as  essential  to  the  economic  progress  of  the  labor  class  much  earlier  than  Mill, 
but  was  oversanguine  as  to  the  possibility  of  truly  educating  people  in  pov- 
erty. Der  isolirte  Staat  in  Beziehung  auf  Landwirthschaft  und  National- 
b'konomie,  II  Theil,  I  Abtheilung,  "Ueber  das  Loos  der  Arbeiter,  ein  Traum 
ernster  Inhalts,"  S.  41  u.  s.  w. 


JOHN  STUART  MILL  367 

Among  the  poorer,  as  among  the  higher,  classes,  the  concep- 
tion of  a  proper  standard  of  life  would  be  formed  and  the  increase 
of  population  would  be  limited  thereby.  Besides,  when  public 
opinion  was  once  far  enough  advanced  to  allow  it,  legislation 
could  make  it  a  legal  offense  for  one  to  beget  children  without 
having  the  means  to  support  them.1  But  Mill  thinks  that  such 
a  law  would  be  unnecessary,  if  only  women  were  emancipated 
"  so  that  they  should  not  depend  for  their  living  upon  the 
exercise  of  a  single  physical  function."  Becoming  more  inde- 
pendent, they  would  not  submit  to  the  burden  of  large  fam- 
ilies.2^] 

At  least  two  measures  are  suggested  by  which  the  government 
may  permanently  improve  the  condition  of  laborers:  by  ex- 
tensive colonization  according  to  Wakefield's  system ; 3  and  by 
the  sale  of  public  land  to  the  industrious  poor,  thus  forming  a 
class  of  small  proprietors.  The  laws,  too,  ought  to  favor  asso- 
ciations of  laborers,  cooperative  undertakings,  and  voluntary 
communistic  experiments. 

Mill  also  recommended  various  measures  to  encourage  im- 
provements on  land,  small  holdings,  and  the  cultivation  of  waste 
lands.  He  thought  that  it  might  be  advisable  for  the  state 
itself  to  own  land  and  lease  it  to  cooperative  agricultural 
associations,  and,  in  small  portions,  as  to  farmers. 

The  fact  that  land  is  limited  both  in  quantity  and  quality 
gives  government  a  function  to  exercise  respecting  it.  The 
right  of  property,  which  one  enjoys  in  the  fruits  of  one's  labor, 
exists  only  by  support  of  the  authority  of  society;  and  this 
support  can  be  withdrawn.  Now  if  the  right  of  property  in  that 

1  Principles,  Bk.  II,  Chap.  Ill,  §  2. 

1  Dissertations  and  Discussions,  Vol.  II,  pp.  411-449;  "Enfranchisement 
of  Women." 

*  E.g.  Wakefield,  View  of  the  Art  of  Colonization,  1849.  Proceeding  from 
the  idea  that  the  highest  productiveness  of  industry  depends  on  a  proper 
proportion  of  labor  to  land,  Wakefield  proposed  that  the  government 
reserve  unappropriated  lands  in  the  colonies,  putting  a  higher  price  upon 
them  than  prevailed  in  the  market,  so  as  to  prevent  too  hasty  and  ex- 
tensive acquisitions.  The  proceeds  were  to  be  used  for  assisting  the  emigra- 
tion of  laborers  to  the  colonies. 


368  ECONOMIC  THOUGHT 

which  one  has  created  is  of  this  nature,  how  much  more  depend- 
ent must  be  the  right  of  property  in  land,  which  nature,  not 
man,  created.  Here  private  property  is  only  justified  if  land- 
lords make  those  improvements  which  benefit  society.1  The 
state  should  invariably  reserve  and  exercise  the  right  to  inter- 
fere when  the  public  good  demands  it.  The  single  fact  that  the 
land  supply  is  limited  gives  government  this  right,  which  it 
ought  to  have  in  case  of  all  monopolies.2 

The  Unearned  Increment.  —  Mill  was  the  first  to  use  the 
term  "  unearned  advantage  "  3  in  connection  with  land,  a  term 
since  become  so  significant  as  "  unearned  increment."  The 
basis  for  the  idea  is  laid  by  Smith  and  Ricardo  in  their  treatment 
of  taxes  on  rent,  but  they  do  not  advocate  any  absorption  of 
economic  rent  as  an  unearned  increment.  Mill  favored  a  period- 
ical valuation  of  land  by  the  government,  with  the  object  of 
enabling  it  to  take  over  the  difference  in  value,  —  the  "  spon- 
taneous increase  "  which  had  accrued  to  rent.4  He  assumed  that 
there  would  be  a  rise  in  value,  due  to  social  forces,  not  to  im- 
provements by  landlords. 

The  foregoing  account  of  some  of  Mill's  views  as  to  private 
property  and  the  social  question  are  those  found  in  his  Prin- 
ciples of  Political  Economy,  or  earlier  essays.     Though  they  are 
not,  strictly  speaking,  Socialistic,  their  tendency  is  unmistakable. 
Indeed,  Mill  later  avowed  himself  a  Socialist 5  in  a  qualified  and 
conservative  sense  of  the  term.     While  repudiating  that  tyranny 
of  society  over  the  individual  which  Socialistic  systems  were 
"  supposed  to  involve,"  he  looked  forward  to  a  time  when  in-  | 
dividual  liberty  might  be  combined  with  common  ownership  * 
of  raw  materials  and  equal  participation  in  the  "  benefits  of  ' 
combined  labor." 

1  Principles,  Bk.  II,  Chap.  II,  §  6 ;  Dissertations  and  Discussions,  Vol. 
IV,  "  Explanatory  Statement  of  the  Programme  of  the  Land  Tenure  Reform 
Association." 

1  Dissertations  and  Discussions,  Vol.  IV,  "The  Right  of  Property  in  Land." 

3  First  used  in  third  edition  (1852) ;  "unearned  appendage,"  "increment 
of  rent,"  in  earlier  editions. 

4  Principles,  Bk.  V,  Chap.  II,  §  5 ;  Dissertations  and  Discussions,  Vol.  IV, 
"Land  Tenure."  *  Autobiography,  pp.  230-234. 


JOHN  STUART  MILL  369 

Governmental  Interference ;  Laisser  Faire.  —  Thus  far  the 
interference  of  government  in  economic  affairs  has  been  but  in- 
cidentally mentioned.  But  Mill's  statement  of  the  "rights"  of 
government  and  individuals  and  the  limitations  upon  them  has 
become  a  classic.1  Government  interference  should  be  limited 
by  a  general  right  of  citizens  to  their  individuality,  in  so  far  as 
such  a  right  is  not  injurious  to  others:  if  I  do  not  injure  my 
fellows,  I  may  be  or  think  as  I  choose.  And  a  point  greatly 
emphasized  is  that  a  large  degree  of  individual  initiative  is 
desirable  as  an  education.2  Other  points  are  that  division  of 
labor  may  be  restricted  through  the  inability  of  the  government 
to  do  all  things,  there  being  limitations  to  its  activity  which  do 
not  obtain  in  the  case  of  its  individual  members.  This,  however, 
might  be  obviated  by  greater  division  in  administrative  function. 
Private  activity  is  generally  better  and  cheaper,  as  is  shown  by 
the  fact  that  the  government  is  seldom  able  to  compete  with 
private  individuals.  An  objection  to  all  acts  of  governmental 
interference  lies  in  the  increased  influence  thus  obtained  by  the 
state.  This  is  always  dangerous,  but  nowhere  more  so  than  in 
a  democracy.  Individuality,  a  rich  diversity  of  human  develop- 
ment, is  a  source  of  all  progress,  and  should  be  jealously  de- 
fended.3 

"  Laisser-faire,  in  short,  should  be  the  general  practice :  every 
departure  from  it,  unless  required  by  some  great  good,  is  a  certain 
evil." 

But  Mill  allows  a  great  place  for  government  activity.  Utility 
is  the  only  test :  if  the  greatest  good  of  the  greatest  number  is 
thereby  conserved,  let  the  government  step  in.  There  are  two 
great  classes  of  interference,  according  to  method :  "  Authorita- 
tive," in  which  the  government  says,  "  do  this,"  or  "  do  not  do 
that  "  ;  "  Non-authoritative,"  or  optional,  as  when  the  govern- 
ment merely  spreads  information,  establishes  models,  and  the 

1  Principles,  Bk.  V,  Chap.  XI. 

2  It  is  to  be  noted,  however,  that  this  point  may  have  an  opposite  bearing 
in  connection  with  other  points.     For  example,  an  argument  for  municipal 
ownership  is  that  the  people  would  take  interest  in  municipal  affairs,  eco- 
nomic and  otherwise. 

3  Principles,  Bk.  V,  Chap.  XI,  §  3 ;  On  Liberty,  Chap.  III. 

2B 


370  ECONOMIC  THOUGHT 

like.  The  burden  of  proof  of  those  advocating  the  former  is 
very  heavy ;  the  latter  is  less  open  to  objection. 

More  specifically  Mill  would  permit  government  action  in 
cases  where  the  consumers'  interests  demand,  they  being  unable 
to  help  themselves.  Here  the  competition  of  the  market  does 
not  apply.  The  matter  of  schools,  for  instance,  cannot  be  left 
to  the  judgment  of  individuals.  In  the  interest  of  the  incom- 
petent, as  the  insane;  of  those  under  a  personal  contract  in 
perpetuity,  as  married  women ;  and  of  those  who  have  but  an 
indirect  control  over  their  property,  as  investors  in  joint  stock 
companies,  governments  may  properly  interfere.  Similarly, 
where  people  are  acting  for  others  and  are  not  properly  guided 
by  self-interest,  as  in  the  administration  of  charity  and  in  such 
public  service  as  erecting  lighthouses  or  conducting  scientific 
experiments,  there  is  room  for  public  activity. 

In  the  foregoing  cases  Mill  is  substantially  in  accord  with 
Adam  Smith,1  except  that  he  gives  a  much  broader  application 
to  the  principle  of  interference  in  behalf  of  the  consumer,  as  such. 
But  he  goes  much  further  when  he  says :  "  There  are  matters 
in  which  the  interference  of  law  is  required,  not  to  overrule  the 
judgment  of  individuals  respecting  their  own  interest,  but  to 
give  effect  to  that  judgment ;  they  being  unable  to  give  effect 
to  it  except  by  concert,  which  concert  again  cannot  be  effectual 
unless  it  receives  validity  and  sanction  from  the  law."  2  Under 
this  principle  Mill  would,  under  certain  conditions,  justify  such 
measures  as  the  legal  establishment  of  a  nine-hour  day,  and  pub- 
lic administration  of  colonization  schemes. 

Comparing  these  two  great  English  economists,  one  conclusion 
is  that  the  difference  in  their  opinions  is  associated  with  the 
difference  in  the  extent  to  which  utility  was  given  rein :  Smith's 
belief  in  natural  law  forbade  the  immediate  application  of  the 
principle  of  utility,  and  made  his  application  of  laisser  faire  more 
absolute  than  Mill's.  Mill  was  not  committed  to  individualism 
as  an  absolute  generalization.  Doubtless  this  difference  was 
in  no  small  measure  due  to  the  industrial  evolution  that  had 
intervened;  just  as  Mill  could  say  that  his  argument  did  not 

1  Cf.  above,  pp.  177  f.  l  Principles,  Bk.  Vv  Chap.  XI,  §  12. 


JOHN  STUART  MILL  371 

apply  to  private  corporations,  whereas  now  they  are  the  domi- 
nant unit  of  business  organization,  so  by  Mill's  day  what  had 
seemed  to  Smith  the  exception  had  in  some  cases  become  the 
rule. 

Philosophy  and  Method.  —  In  studying  Adam  Smith  it  was 
found  that  though  there  was  a  utilitarian  element  in  his  politi- 
cal economy,  this  was  largely  concealed  by  the  veil,  after  all 
transparent,  of  natural  right.  In  Mill  this  veil  is  dropped 
altogether,  and  utilitarianism  comes  forward  openly  as  such. 
If  any  course  of  action  has  utility,  nothing  further  is  to  be  said 
against  it.  But  perhaps  enough  has  been  written  already  on 
this  matter. 

Mill  distinguishes  between  different  kinds  of  utility,  that 
is  to  say  happiness,  and  assigns  a  far  higher  rank  to  that 
which  is  useful  to  the  mind  than  that  which  benefits  only  the 
annual  body.  One  must  not,  therefore,  accuse  Mill  of  mate- 
rialism or  of  selfish  principles  because  he  professed  himself  a 
utilitarian. 

In  fact  Mill  —  the  Mill  of  later  years,  at  least  —  may  be 
classed  as  an  idealist.  Here  his  inconsistency,  resulting  from 
change  and  growth,  makes  it  difficult  to  speak.  His  economics 
proper,  especially  his  statics,  based  as  it  was  upon  Ricardo,  is 
essentially  materialistic.  Man  is  regarded  as  the  creature  of 
physical  laws.  Utility  is  a  material  concept.  But  where  he 
preaches,  where  he  discusses  progress,  where  he  inconsistently 
with  the  Benthamic  utilitarianism  distinguishes  different  grades 
of  happiness,  there  he  is  the  idealist.  There  the  influence  of 
Comte's  philosophy,  of  the  Socialists,  and  his  wife,  modify  the 
Ricardian  foundation.  Man  dominates  nature.  Utility  in- 
cludes happiness  of  a  high  order. 

It  is  one  aspect  of  Mill's  idealism  that  shows  itself  in  his 
differentiation  of  the  laws  of  Production  from  those  of  Dis- 
tribution.1 In  the  former  nature  is  supreme  and  her  action  is 
to  be  accepted  without  question.  Her  facts  are  physical 
truths.  Man  merely  moves  things  so  that  they  will  be  acted 
upon  by  her  forces.  But  in  Distribution  human  institutions 
1  Patten,  Dynamic  Economics,  p.  21. 


372  ECONOMIC  .THOUGHT 

dominate.  Here  laws  are  not  unalterable ;  nor  the  things  that 
are,  the  best  that  can  be.  Led  by  his  idealism,  Mill  made  this 
addition  to  the  simpler  Ricardian  creed,  the  "  primitive 
economy."  * 

In  this  fact  is  in  part  to  be  seen,  no  doubt,  the  working  of 
the  changed  conditions  mentioned  in  the  introduction  to  this 
chapter.  Many  great  inventions  made  social  readjustments 
necessary.  The  growth  of  population  and  the  rise  of  the  Mal- 
thusian  idea  suggested  the  need  for  and  possibility  of  human 
control  and  improvement.  Mill  first  puts  social  institutions 
along  with  physical  laws  as  a  controlling  force,  and  then  argues 
for  a  progress,  not  merely  quantitative,  but  qualitative,  through 
social  action. 

This  invocation  of  social  activity  is  an  ear-mark  of  Ideal- 
ism. 

Mill,  however,  draws  too  sharp  a  distinction  between  the 
laws  of  Production  and  Distribution,  nor  is  he  able  to  carry  it 
out  consistently.2  The  pillars  or  framework  of  his  economic 
theory  remain  materialistic.  "  A  primitive  man  "  moved  by 
self-interest  "  is  put  into  the  mechanism  of  modern  society." 
In  thus  asking  a  primitive  man  —  one  actuated  by  self-interest 
and  molded  by  physical  environment  —  to  progress  along  lofty 
social  lines,  he  again  shows  the  same  lack  of  harmony  or  fusion 
in  the  elements  of  his  philosophy  already  observed. 

What  position  does  Mill  take  as  regards  the  new  ordering  of 
economic  forces?  On  the  one  hand  a  strong  adherence  to  the 
old  laisser-faire  principles  is  found ;  on  the  other,  a  recognition 
of  the  evils  developed  by  a  later  time,  and  a  decisive  declara- 
tion that  individualistic  egoism  is  not  sufficient  to  work  a  cure. 
In  fact,  at  points  an  approach  to  the  opposite  of  laisser  faire, 
Socialism,  appears  in  those  parts  of  his  work  which  discuss  the 
labor  question.  "  Extremes  meet."  From  either  standpoint 
Mill's  system  appears  inconsistent.  Notwithstanding  the  ad- 
mirable acuteness  and  clearness  of  his  understanding,  he  appears 

1  Principles,  Bk.  II,  Chap.  I,  §  i ;  Preliminary  Remarks,  last  four 
paragraphs. 

1  See,  e.g.,  Bonar,  Philosophy  and  Political  Economy,  p.  252. 


JOHN  STUART  MILL  373 

occasionally  to  become  confused  between  the  old  and  the  new 
times.  His  system  may  be  compared  to  a  Janus  head,  of 
which  the  one  face  looks  back  into  the  past,  the  other  forward 
into  the  future.  Or  he  may  be  likened  to  a  man  standing  at  a 
place  where  two  roads  part  without  being  able  to  decide  which 
one  to  take. 

Mill's  method  is  to  be  criticized  on  lines  similar  to  those 
followed  in  examining  his  philosophy.  In  his  earlier  work  he 
regarded  the  a  priori  and  deductive  method  as  the  only  fruitful 
one  for  a  study  of  first  causes.  His  Unsettled  Questions  shows 
a  belief  in  this  method,  not  only  for  Political  Economy,  but 
for  the  broader  Social  Science.  He  began  his  System  of  Logic 
with  the  idea,  more  or  less  conscious,  of  establishing  the  reign 
of  law  in  society  as  in  the  physical  world,  and  showing  that  the 
a  priori  methods  of  Ricardo  and  James  Mill  were  the  same  as 
those  used  in  the  "  natural  sciences."  x 

Even  while  at  work  on  the  Logic,  he  was  corresponding  with 
Comte,2  and  the  latter's  influence,  together  with  that  of  Ma- 
caulay  and  a  study  of  chemistry,  led  him  to  modify  his  belief. 
For  social  science,  he  was  led  to  believe  that  the  old  method 
was  dangerous,  and  to  advocate  a  combination  of  induction 
and  deduction  which  he  called  the  Concrete  Deductive  Method. 
This  method,  it  will  be  observed,  would  readily  appeal  to  one 
grounded  in  the  Ricardian  law  of  Rent,  which  is  "  a  plain  in- 
duction, followed  by  a  bold  deduction  with  plenty  of  verifica- 
tions." 

This  much  may  be  said :  Mill  went  further  than  any  great 
English  economist  preceding  him  in  expressly  using  perfect 
competition  as  a  hypothetical  assumption  made  only  for  scien- 
tific purposes,  and  in  pointing  out  exceptions  and  limitations. 

The  framework  and  foundation  of  the  Political  Economy, 
however,  remain  a  priori.  He  sets  out  with  the  same  supposi- 
tions as  Adam  Smith  and  Ricardo,  namely,  that  man  is  gov- 
erned by  self-interest  in  economic  affairs,  that  the  individual 
pursuit  of  selfish  ends  promotes  the  general  welfare,  that  profits 

1  See  Patten,  Development  of  English  Thought. 
*  See  Leroux,  Lettres  d'  Aug.  Comte  a  J.  S.  Mitt. 


374  ECONOMIC  THOUGHT 

and  wages  are  equal,  and  that  taxation  is  shifted  about  in  such 
manner  as  to  make  them  so.  Only  in  distinguishing  the  laws 
of  Distribution  from  those  of  Production  he  breaks  from  the 
earlier  idea,  removing,  as  the  distinction  does,  a  part  of  eco- 
nomics from  the  dominance  of  physical  causes. 


V.   OPPONENTS   AND  LEADING  CRITICS 

(Resumed) 


i.  THE  PHILOSOPHICAL  AND  ETHICAL  SYSTEM 

(Resumed) 


THE   FOUNDERS   OF    "SCIENTIFIC"    SOCIALISM   IN 
GERMANY » 

THE  earlier  French  and  English  Socialism  down  to  1848  was 
largely  Utopian  and  idealistic.  Down  to  1848,  too,  it  was 
dominated  by  a  bourgeois  or  middle-class  spirit,  and  was  not  of 
and  for  the  wage-earning  class;  though  with  Louis  Blanc  and 
Proudhon  the  transition  to  a  proletarian  spirit,  opposing  labor 
to  capital,  is  manifest.  Moreover,  none  of  the  writers  who 
have  been  discussed  can  be  called  "  State  Socialists,"  that  is, 
Socialists  who  accept  existing  governments  as  the  agency  for 
carrying  out  their  programs.  True,  Louis  Blanc  and  Proudhon 
relied  to  some  extent  upon  the  state ;  but  the  former  was  half 
an  associationist,  or  group  Socialist,  and  the  latter  was  an 
anarchist  in  his  way.  We  are  now  to  pass  to  Germany  and  the 
purely  proletarian  Socialism  of  the  second  half  of  the  nineteenth 
century ;  a  Socialism  which  ridicules  the  Utopian  ideals  of  the 
earlier  group  and  prides  itself  upon  its  "  scientific  "  realism, 
though  it  draws  largely  from  its  French  and  English  predeces- 
sors. And  first  it  is  logical  to  take  up  the  thought  of  a  group 
of  thinkers  commonly  known  as  "  State  Socialists,"  chief  of 
whom  are  Rodbertus  and  Lassalle. 

1  See  the  references  under  Chap.  XXI ;  and  Handworterluch  d.  Staats- 
vrisscnschaft,  articles  on  "Socialism,"  " Rodbertus,"  and  " Marx" ;  Flint, 
Socialism;  Bohm-Bawerk,  Capital  and  Interest,  Bk.  VI,  Chaps.  II  and  III, 
English  translation  by  Smart,  pp.  328-392;  Conner,  The  Social  Phi- 
losophy of  Rodbertus;  Masaryk,  Die  philosophischen  und  soziohgischen 
Grundlagen  des  Marxismus. 

377 


378  ECONOMIC  THOUGHT 

As  just  intimated,  they  accept  the  state  as  the  agency  for 
applying  their  theories  and  seek  to  enlarge  its  economic  func- 
tions accordingly.  Properly  speaking,  a  "  State  Socialist,"  then, 
is  one  who  advocates  a  radical  scheme  of  social  reform  to  be 
carried  out  by  government.  They  are,  therefore,  generally 
nationalists,  and  stand  opposed  to  the  cosmopolitan,  interna- 
tional, or  universal  Socialism  of  Marx,  on  the  one  hand,  and  to 
the  associationist  or  group  Socialism  of  Owen  and  Fourier,  and 
Louis  Blanc,  on  the  other. 

i.  State  Socialism:  Rodbertus  and  Lassalle.  (a)  Rod- 
bertus.  —  Karl  Rodbertus  (1805-1875)  has  probably  exerted 
more  direct  influence  upon  economic  thought  than  any  other 
socialistic  writer,  unless  it  be  Marx.  This  is  especially  true 
in  Germany,  where  such  men  as  Wagner  admit  his  influence ; 
but  it  may  be  seen  even  in  the  thought  of  American  economists. 
His  chief  economic  writings  are:  Zur  Erkenntniss  unserer 
staatswissenschajtlichen  Zustande  (1842)  (Our  Economic  Con- 
dition), which  contains  his  leading  views;  Sociale  Brief e  an 
von  Kirchman  (1850-1851)  (Social  Letters) ;  Zur  Beleuchtung 
der  Sociale  Frage  (1875)  (Light  upon  the  Social  Question) ; 
and  Der  Normal  Arbeitstag  (1871)  (The  Normal  Labor  Day). 
The  last  essay  contains  his  plans  for  immediate  reform. 

Rodbertus'  economic  thought  may  be  analyzed  as  proceeding 
from  two  main  ideas :  a  labor  theory  of  productivity,  and  a 
belief  in  a  decreasing  wage  share.  The  second  idea  is  con- 
nected with  the  so-called  iron  law  of  wages,  that  is,  a  sub- 
sistence theory.  Putting  these  two  main  ideas  together,  he 
emphasizes  the  problem  of  distributive  justice  and  evolves  a 
notable  theory  of  crises. 

In  the  first  place,  then,  he  believed  that  labor  produces  all 
economic  goods,  —  either  directly,  or  indirectly  through  tools 
and  machinery.1  Those  goods  only  are  economic  which  are 
produced  by  labor,  others  being  "  natural."  More  than  that, 
manual  labor  is  meant.  Intellectual  labor  is  very  important; 
but  it  is  not  costly,  and  is  to  be  regarded  as  a  free  gift  of  nature, 
1  See  Zur  Erkenntniss,  pp.  7  ff. ;  Schriften,  II,  pp.  105  f. 


THE  FOUNDERS  OF  "SCIENTIFIC"   SOCIALISM        379 

like  land.  It  will  be  observed  that  this  does  not  necessarily 
mean  a  labor  theory  of  value:  Rodbertus  says  labor  creates 
products;  he  does  not  say  values.  Economic  goods,  however, 
all  have  value,  and  he  thought  this  labor  was  the  best  measure 
of  value.  Simply,  he  does  not  say  that  labor  determines  value. 

The  "  law  "  of  a  decreasing  wage  share  (Gesetz  der  fallenden 
Lohnquote)  was  formulated  by  Rodbertus  as  early  as  I837.1 
By  it  he  meant  that  the  proportion  of  the  national  income 
received  by  laborers  continually  decreases.  The  total  amount 
paid  in  wages  may  increase,  but  rent  and  interest  take  an  in- 
creasing percentage  of  the  aggregate  income.  In  formulating 
this  law  Rodbertus  was  probably  influenced  by  Sismondi,  and 
it  appears  to  be  a  simple  deduction  from  the  subsistence  theory 
of  wages  of  the  classical  economists,  narrowly,  and  errone- 
ously, interpreted.  If  production  is  continually  increasing, 
while  labor  as  a  commodity  merely  gets  enough  to  cover  cost, 
its  proportional  share  decreases. 

The  national  income,  consisting  of  goods  that  are  of  direct 
importance  to  life,  is  divided  by  Rodbertus  into  two  parts  or 
shares :  wages  and  rent.  Rent,  in  its  turn,  falls  into  two  parts  : 
land  rent  and  capital  rent.  Its  existence  is  due  to  the  economic 
fact  that  there  is  a  surplus  produced  by  laborers  over  their 
subsistence,  and  to  the  juristic  fact  that  private  property  in 
land  and  capital  enables  the  owners  to  exploit  labor  and  retain 
that  surplus.  In  these  ideas,  again,  Rodbertus  is  clearly  fol- 
lowing the  thought  of  Sismondi,  Proudhon,  and  the  Saint- 
Simonians. 

From  the  two  main  ideas  thus  briefly  sketched,  Rodbertus 
concluded  that  the  great  mass  of  mankind  is  unjustly  shut  out 
from  a  participation  in  the  income  which  it  creates,  a  condition 
that  is  inimical  to  culture.  Indeed,  his  great  service  is  to  have 
brought  out  sharply  the  question  of  distributive  justice.  With 
more  economic  learning  and  statistical  data  than  his  predeces- 
sors, coupled  with  a  forceful  presentation  of  the  issue,  he  drove 
home  the  fact  that  there  is  a  problem  in  the  poverty  of  the 
masses  which  partly,  at  least,  concerns  economics  as  a  science. 
1  Die  Forderungen  der  arbeitenden  Klassen. 


380  ECONOMIC  THOUGHT 

Rodbertus'  famous  theory  of  crises  is  also  derived  from  his 
theory  of  a  decreasing  wage  share.  Very  briefly  stated,  it  is 
that,  as  the  great  mass  of  wage  earners  have  a  diminished  pur- 
chasing power,  consumption  fails  to  keep  pace  with  production. 
A  contraction  of  production  ensues,  with  unemployment  and  a 
further  decrease  in  purchasing  power,  leading  to  an  intensifica- 
tion of  the  crisis.  The  similarity  of  this  idea  to  Sismondi's 
theory  of  overproduction  will  be  observed,  and  it  is  open  to 
the  same  criticism.  Moreover,  if  we  are  to  assume  that  an 
increase  in  labor's  share,  or  wages,  would  remedy  the  matter, 
it  appears  that  the  validity  of  the  theory  depends  on  an  assump- 
tion that  capitalists  in  general  are  receiving  more  than  a  return 
necessary  to  secure  the  activity  of  their  capital;  otherwise 
wages  could  only  be  increased  at  the  expense  of  capital  and  a 
consequent  restriction  of  production.  Thus  the  theory  rests 
upon  the  exploitation  idea. 

Poverty  and  crises  are  to  be  done  away  with,  and  distribu- 
tive justice  attained  by  an  ultimate  socialization  of  property. 
This,  however,  should  be  an  evolutionary  process.  History, 
Rodbertus  thinks,  shows  three  great  stages.  The  earliest  is 
the  period  of  heathen  antiquity,  in  which  human  beings  are 
owned  and  labor  is  thus  exploited  by  the  rent  receivers.  In 
the  second,  or  Christian-Germanic  stage,  land  and  capital  are 
private  property  for  the  use  of  which  the  owners  demand  an 
unearned  rent.  This  is  the  existing  condition.  In  the  future  a 
Christian-Social  stage  is  to  come,  in  which  land  and  capital  will 
be  nationalized  and  private  property  be  allowed  only  accord- 
ing to  service  or  desert.  This  stage  might  be  expected  in  five 
centuries,  perhaps. 

As  to  immediate  and  practical  remedies  Rodbertus  chiefly 
proposed  various  regulations  of  the  labor  contract,  with  the 
idea  of  increasing  labor's  share  in  the  national  income.  He 
advocated  the  legal  establishment  of  a  normal  working  day. 
Moreover,  the  determination  of  a  normal  amount  of  work  to 
be  performed  by  an  average  worker  in  a  given  time  was  favored 
by  him.  This  average  production  would  serve  as  a  standard 
of  value,  according  to  which  each  laborer  would  be  credited. 


THE  FOUNDERS  OF  "SCIENTIFIC"  SOCIALISM       381 

Prices,  too,  would  be  fixed,  and  be  measured  in  a  labor  currency 
in  a  manner  quite  similar  to  Owen's  scheme.  By  such  devices 
the  transition  to  his  third  stage  would  be  hastened. 

Of  course  Rodbertus  attacks  Smith's  system  with  its  com- 
petitive basis.  His  most  fundamental  critical  idea  lies  in  the 
opposition  of  a  social  demand  to  the  "  effective  demand  "  of 
the  economists ;  or,  just  to  put  it  in  another  way,  he  emphasizes 
utility  rather  than  exchange  value,  —  an  idea  in  developing 
which  Sismondi  preceded  him.  Rodbertus,  however,  fits  it 
into  the  garb  of  Socialism.  The  effective  demand,  he  says,  is 
a  property  demand.  Property-owners  determine  production, 
directing  it  so  as  to  secure  the  largest  net  profits  rather  than 
the  largest  amount  of  essentials.  Luxuries  are  produced,  while 
the  most  intense  wants  go  unsatisfied. 

Among  other  points,  Rodbertus  criticizes  the  Classicists  on 
historical  grounds  for  assuming  the  existence  of  an  original  state 
in  which  men  were  equal  in  property  and  political  rights.  His- 
tory, he  thought,  always  shows  inequality  and  exploitation 
of  the  weak  by  the  strong.  And  in  a  similar  vein  a  distinction 
is  drawn  between  capital  as  a  logical  functional  concept  and 
capital  as  an  historical  fact. 

Naturally  the  wages-fund  theory  is  rejected,  as,  according  ^ 
to  his  assumptions,  Rodbertus  could  not  believe  that  wages  are 
paid  out  of  capital. 

Passing  over  his  criticism  of  Bastiat's  interest  theory,  this 
resume  of  his  chief  economic  criticisms  may  be  concluded  with 
a  note  concerning  his  theory  of  rent.  Ricardo's  doctrine  he 
thinks  is  overturned  by  his  fancied  proof  that  rent  would  exist 
even  if  all  land  were  equally  productive ;  differences  in  pro- 
ductivity explain  differences  in  rent,  not  the  origin  of  rent.1 
His  own  theory,  which  is  probably  suggested  by  certain  pas- 
sages in  the  Wealth  of  Nations,2  is  a  notable  illustration  of  the 
inconsistencies  which  so  abound  in  the  strictly  economic  thought 


1  See  Beleuchtung,  pp.  170  f. 

2  Bk.  I,  Chap.  VI,  paragraphs  10  and  n.     "In  the  price  of  flour  or 
meal,  we  must  add  to  the  price  of  the  corn,  the  profits  of  the  miller,  and  the 


382  ECONOMIC  THOUGHT 

of  Socialistic  writers.  Starting  from  the  idea  that  the  price  of 
all  products  corresponds  naturally  to  their  labor  cost,  and  that 
the  price  of  manufactures  and  raw  materials  are  thus  on  a 
similar  basis,  even  though  land  ownership  is  a  legal  monopoly ; 
he  concludes  that  landowners  get  a  larger  return  than  capital- 
ists, in  that  the  latter  must  pay  for  raw  materials,  whereas 
land  is  a  free  gift  of  nature.  Landowners,  as  such,  having  no 
expenses  for  raw  material,  secure  a  larger  net  return,  which  is 
land  rent.  Or  to  put  it  another  way,  land  itself  is  the  land- 
owner's raw  material,  and  he  can  normally  demand  enough  for 
its  use  to  cover  the  customary  gain  of  the  capital  engaged  in 
producing  raw  materials  required  in  other  industries.  The 
whole  idea  reminds  one  of  the  Physiocrats'  surplus  and  Smith's 
notion  that  in  agriculture  "  nature  "  labors  with  man  in  a 
peculiar  way,  and  rests  upon  the  failure  to  see  that  in  economic 
society  land  values  are  themselves  capitalized. 

But,  one  asks,  what  then  of  the  differences  among  different 
manufacturing  industries  in  this  regard?  Does  the  manu- 
facturer of  rails  or  girders  secure  a  lower  net  return  >vlian  the 
producer  of  iron  and  steel,  just  as  the  latter  is  assumed  to 
secure  less  than  the  owner  of  the  iron  mine  or  land?  Not  if 
the  labor  cost  theory  is  to  be  maintained,  for  this  reasoning 
makes  land  ownership  an  element  in  value ;  yet  this  conclusion 
would  follow  from  his  rent  theory.  His  rent  theory  is  incon- 
sistent with  his  theory  of  labor  cost ;  and  leads  to  conclusions 
that  are  contradicted  by  the  facts  of  equalized  "  profits  "  in  com- 
petitive industry.1 

(b)  Lassdle.  —  Ferdinand  Lassalle  (1825-1864)  was  the 
Louis  Blanc  of  German  Socialism.  His  chief  work  was  that  of 
the  agitator  and  propagandist.  He  founded  the  Social  Demo- 
cratic Party.  His  thought  needs  no  long  consideration,  for  in 
its  main  outlines  it  was  that  of  Louis  Blanc,  Rodbertus,  and 

wages  of  his  servants,"  etc.  "In  the  price  of  linen  we  must  add  the  wages 
of  the  flax  dresser."  "The  capital  which  employs  the  weavers  .  .  .  must 
be  greater  than  that  which  employs  the  spinners.  .  .  ." 

1  Cf.  Lexis,  "  Zur  Kritik  der  Rodbertischen  Theorien,"  Jahrb.  f.  Nat. 
Ok.,  N.  F.,  IX,  469;  Oppenheimer,  Ricardo's  Grundrententheorie,  pp.  38  f. 


THE  FOUNDERS  OF  "SCIENTIFIC"   SOCIALISM        383 

Marx.1  Lassalle  it  was  who  made  the  phrase  "iron  law  of 
wages  "  his  own.  Accepting  the  subsistence  theory  of  wages,  he 
taught  that  under  the  capitalistic  system  the  position  of  labor  is 
hopeless.  Therefore  capitalism  must  be  abolished,  and  coopera- 
tive association  be  put  in  its  place.  "  Productive  association 
with  state  credit "  was  his  scheme.2  And  the  state  was  to 
guard  the  funds  of  the  associations  and  maintain  suitable  rules. 

The  most  notable  points  in  Lassalle's  writing  are  the  bril- 
liant way  in  which  he  seeks  to  drive  home  the  significance  of 
capitalism,  and  his  theory  of  Konjunctur.  Capital  he  takes 
broadly  to  be  the  name  for  a  group  of  political,  economic,  and 
juristic  conditions  which  are  not  absolute  and  permanent,  but 
the  result  of  an  historical  development.  An  examination  of 
the  existing  economic  order  shows  that  its  essential  features 
are  division  of  labor,  production  for  a  world  market,  com- 
petition, and  the  ownership  of  the  instruments  of  labor  by  the 
capitalist  class,  which  exploits  wage-earners  by  paying  them 
according  to  the  iron  law  of  wages,  pocketing  the  surplus. 
Capital,  "  the  dead  instrument  of  labor,"  has  become  the  active 
agent,  degrading  the  living  laborer.3 

In  opposing  individualism  Lassalle  was  led  to  deny  that  the 
individual  controls  his  own  destiny.  There  is  a  large  element 
of  chance,  or  conjuncture,  he  said,  that  dominates  individual 
endeavor  and  makes  control  by  society  necessary.  Wars, 
crises,  etc.,  are  of  social  origin  and  largely  beyond  the  scope  of 
individual  action.  It  is  therefore  folly  to  rely  upon  individual 
initiative  and  self-interest  as  do  the  classical  economists. 

2.  International  Revolutionary  Socialism:  Karl  Marx 
and  Friedrich  Engels. —  For  a  generation  Karl  Marx  was  the 
undisputed  leader  in  Socialistic  thought,  and  his  chief  work, 
Das  Kapital  (Capital),  1867,  came  to  be  called  the  Bible  of  the 

1  Das  System  der  Erworbenen  Rechte,  1861. 
Workingmen's  Programme,  1862. 

Open  Letter,  1863. 
Bastiat-Schulze,  1864. 

2  Open  Letter,  passim. 

3  Bastiat-Schulze,  pp.  181  f. 


384  ECONOMIC  THOUGHT 

"  scientific  "  Socialists.1  If  it  is  now  true  that  its  prestige 
has  been  somewhat  shaken  by  "higher  criticism,"  it  is  still  the 
leading  source  from  which  the  great  mass  of  intelligent  Socialists 
draw. 

Born  in  1818  at  Treves,  Marx  was,  like  Lassalle,  a  Jew. 
He  studied  philosophy  and  history  at  Bonn,  and  became  in- 
timately acquainted  with  Hegel's  thought.  He  was  also  in- 
fluenced by  Lorenz  von  Stein  in  regarding  the  social  movement 
as  an  evolution.2  Marx  became  a  radical  editor,  was  driven 
from  Germany  to  France  and  thence  to  Belgium,  finally  taking 
up  his  residence  in  London,  where  he  lived  until  his  death  in 
1883.  The  spirit  of  the  generation  in  which  Marx  lived  was 
largely  his,  and  it  has  been  well  characterized  as  "  the  irreverent 
and  revolutionary  spirit  of  what  was  once  known  as  Young 
Germany;  the  spirit  of  a  race  of  disillusioned  men,  without 
belief  in  God  or  unsensuous  good ;  a  hypercritical,  cynical,  and 
often  scurrilous  spirit.  In  passing  into  its  latest  or  German 
stage,  Socialism  gained  intellectually,  but  lost  morally."  3 

With  Marx  socialism  took  on  a  purely  materialistic  garb, 
and  became  international  or  cosmopolitan  in  its  scope  as  con- 
trasted with  the  national  industrialism  or  associationism  or 
State  Socialism  of  his  various  predecessors.  Marxianism  is  the 
classicism  of  Socialistic  thought,  abstract,  deductive,  cosmo- 
politan. Rodbertus  was  an  idealist.  So  were  the  earlier 
French  writers  who  clung  to  the  institution  and  believed  in 

1  Other  works  are :  Einleitung  zur  Krilik  des  Hegelschen  Rechls  philosophic 
(1843)  (Introduction  to  a  Critique  of  Hegel's  Philosophy  of  Rights), 
containing  the  germs  of  his  materialistic  conception  of  history;  Misere  de 
la  Philosophic  (1847)  (the  Poverty  of  Philosophy,  a  criticism  of  Proudhon) ; 
Discours  sur  la  question  du  libre  exchange  (1848)  (Discourse  upon  the 
Question  of  Free  Exchange) ;  Zur  Krilik  der  Politischen  Oekonomie  (1859) 
(a  Contribution  to  the  Critique  of  Political  Economy).  Only  the  first  volume 
of  Capital  appeared  in  1867.  The  two  other  volumes  were  brought  out  in 
1885  and  1894,  after  Marx's  death  (1885),  by  his  collaborator,  Engels. 
Engels'  chief  work  was  Uerrn  Eugen  Diihring's  Umwalzung  der  Wissen- 
schaft,  2d  ed.,  1886.  The  Communistic  Manifesto  of  1848  was  the  joint 
work  of  Marx  and  Engels. 

1  See  below,  p.  408.  *  Flint,  Socialism  (1895),  pp.  136-137. 


THE  FOUNDERS  OF   "SCIENTIFIC"   SOCIALISM        385 

the  innate  goodness  of  man.  But  Marx  was  in  fierce  revolt 
against  institutions  including  the  existing  states,  and  was  far 
from  believing  that  good  predominates  in  mankind.  Accord- 
ingly he  put  Hegel's  dialectic  upon  a  materialistic  basis,  and 
made  social  evolution  a  matter  of  material  and  economic  forces. 
To  Marx  "  the  ideal  is  nothing  else  than  the  material  world 
reflected  by  the  human  mind."  l 

Indeed,  one  of  the  things  ordinarily  associated  with  the 
name  of  Marx  is  his  materialistic  interpretation  of  history,  and 
especially  his  analysis  of  the  existing  capitalistic  stage.  Several 
others  of  the  Socialists  had  analyzed  the  development  of  society 
into  stages,  with  more  or  less  elaboration  of  their  material 
characteristics.  It  remained  for  Marx,  however,  to  develop 
the  idea  that  all  social  changes  have  their  ultimate  causes  in 
the  modes  of  production  and  exchange,  or  that  economic  factors 
dominate  all  history  and  determine  social  organization,  classes, 
and  class  interests.2  In  the  present  stage  of  history  capital  — 
which  he,  like  Rodbertus,  regards  as  an  "  historic  concept  "  — 
stands  opposed  to  labor,  the  latter  being  exploited.  Here 
Marx  presents  an  acute  analysis  of  industrial  conditions,  which 
has  its  value,  even  though  largely  vitiated  by  a  warped  view- 
point. 

It  is  essential  to  understand  his  notion  of  capital,  for  it  is 
not  the  ordinary  one.3  To  Marx,  circulation  of  commodities 
is  the  starting  point  of  capital,  and  he  dates  the  "modern" 
history  of  capital  from  the  sixteenth  century,  when  a  world 
commerce  arose.  "  As  a  matter  of  history,  capital,  as  opposed 
to  landed  property,  invariably  takes  the  form  of  money ;  .  .  . 
the  first  form  of  appearance  of  capital  is  money."  Then  by  pur- 
chasing labor  power  for  less  than  it  is  worth  and  retaining  the 
surplus,  money  is  converted  into  capital.  "  By  turning  his 

1  Capital,  preface  to  second  edition. 

2  Friedrich  Engels,  Marx's  collaborator,  urges  that  Marx  did  not  take 
such  an  extreme  view;   see  his  Socialistischer  Akademiker  (1895).     It  is  not 
unlikely  that  to  say  that  Marx  makes  the  economic  factor  the  sole  factor 
in  historical  development  is  going  too  far. 

8  See  Capital,  Vol.  I,  Part  II,  Chap.  IV,  and  Part  III,  Chap.  VII. 

—  2C 


386  ECONOMIC  THOUGHT 

money  into  commodities  that  serve  as  the  material  elements  of 
a  new  product,  and  as  factors  in  the  labour-process,  by  incor- 
porating living  labour  with  their  dead  substance,  the  capitalist 
at  the  same  time  converts  value,  i.e.  past,  materialized  and 
dead  labour  into  capital,  into  value  big  with  value,  a  live  mon- 
ster that  is  fruitful  and  multiplies,"  •  —  a  "  vampire  "  that  sucks 
the  blood  of  labor.  Capital  is  wealth  used  to  exploit  labor. 

Thus  Marx's  idea  of  capital  as  an  "  historic  concept  "  is  part 
and  parcel  of  the  idea  of  a  surplus  value  that  labor  creates  and 
capital  appropriates.  The  idea  of  surplus  value  is  his  most 
famous  contribution.  It  demands  attention  next. 

In  the  first  place  it  will  be  remembered  that  most  of  the 
earlier  Socialists  had  the  same  general  idea,  and  that  the  English- 
man, Thompson,  had  a  very  definite  one.  Such  originality, 
then,  as  Marx  has,  must  lie  in  his  formulation'and  attempt  at 
proof. 

This  begins  with  his  theory  of  value.  Marx  starts  with  an 
abstraction.  Use  value  is  distinguished  from  exchange  value, 
or  value,  for  short ;  and  all  that  remains  of  commodities  "  if 
we  abstract  their  use- value  "  is  value.  Marx  thinks  labor  pro- 
duces all  value,  capital  being  nothing  but  stolen  labor;  there- 
fore this  abstract  value  exists  "  only  because  human  labor  in 
the  abstract  "  has  been  embodied  in  goods.  Value  is  "  a  mere 
congelation  of  homogeneous  human  labour  "  —  "  crystals  "  of 
a  "  social  substance."  l  All  this  concerns  the  qualitative  aspect 
of  value,  a  phase  which  Marx  thinks  the  economists  had  un- 
duly neglected. 

The  value  of  a  commodity  being  thus  "  abstracted  "  from 
all  relation  to  its  form  or  use,  it  remains  to  discuss  its  deter- 
mination in  exchange,  or  the  quantitative  aspect.  Briefly,  this 
is  reduced  to  socially  necessary  labor-time,  —  to  the  time  spent 
by  the  average  laborer  under  existing  social  conditions.  If  it 
requires  x  labor  hours  to  make  the  linen  and  2  x  labor  hours  to 
make  a  coat,  the  coat  has  a  value  twice  as  great  as  that  of  the 
linen. 

Marx  criticizes  economists  for  not  analyzing  the  qualitative 
1  Vol.  I,  Chap.  I. 


THE  FOUNDERS  OF   "SCIENTIFIC"  SOCIALISM        387 

and  quantitative  aspects  of  labor  as  entering  value,  and  for 
not  reducing  labor  to  abstract  social  labor. 

It  is  obvious  that  certain  difficulties  are  inherent  in  the 
attempt  to  reduce  labor  to  an  abstract  fund,  owing  to  the 
differing  character  and  intensity  of  labor,  —  to  say  nothing  of 
the  differing  utilities  of  products,  which  Marx  "  abstracts." 
These  difficulties  Marx  in  part  recognizes.  He  attempts  to 
get  around  them,  (i)  by  conceiving  of  all  labor  power  and  all 
values  as  funded  into  homogeneous  social  aggregates,  divisible 
into  equal  units ;  (2)  by  limiting  his  conclusion  to  "  normal 
conditions  of  production  "  and  "  the  average  degree  of  skill 
and  intensity  prevalent  at  the  time." 

Having  thus  defined  value  and  based  it  upon  labor  time, 
Marx  proceeds  to  argue  that  capitalists  secure  a  surplus  of 
value  in  hiring  labor.  In  itself  an  old  idea,  Marx  elaborates  its 
argument  somewhat.  Assuming  that  the  exchange  value  of  a 
day's  labor  power  is  a  certain  sum,  determined  by  the  fact 
that  the  means  of  subsistence  required  for  the  day  cost  half  a 
day's  labor,  he  argues  that  this  does  not  prevent  his  working  a 
whole  day,  nor  determine  the  value  of  the  laborer's  daily  prod- 
uct. The  capitalist,  in  short,  buys  of  the  laborer  the  "  use- 
value  "  of  a  day's  labor  power  for  its  exchange  value  or  cost, 
and  the  difference  is  his  surplus.1 

Criticism  of  the  main  points  in  Marx's  economic  theories 
must  be  adverse.  To  begin  with,  his  underlying  philosophy  of 
history  is  indisputably  one-sided.  Too  many  things  occur  for 
reasons  not  entirely  economic,  or  even  not  economic  at  all. 
There  is  an  element  of  truth  in  his  position,  namely,  that  eco- 
nomic forces  are  very  important  factors  in  shaping  history. 
This  it  was  well  to  emphasize.  But  others  had  done  this, 
notably  Comte;  and  Marx's  countryman,  Lorenz  von  Stein, 
may  have  given  him  some  of  his  ideas. 

His  chief  historical  conclusion  immediately  concerns  capital. 

One  must  feel  that  here  as  elsewhere  his  desire  to  prove  surplus 

value  and  exploitation,  rather  than  historical  study,  influenced 

him.    To  say  that  capital  has  not  always  existed  where  men  use 

1  See  Capital,  pp.  174-176. 


388  ECONOMIC  THOUGHT 

tools  to  aid  in  production  is  only  possible  when  a  peculiar  and 
question-begging  definition  of  capital  is  adopted. 

Moreover,  it  is  contrary  to  his  own  method  of  historical 
interpretation  to  overlook  the  social  services  and  the  economic 
function  of  the  capitalist  class.  Its  initiative  was  largely  in- 
strumental in  overthrowing  feudalism;  its  enterprise  and 
management  are  of  value  to-day. 

But  the  heart  of  the  whole  system  lies  in  his  theory  of  value, 
and  that  heart  is  unsound. 

(1)  In  the  first  place  it  is  unsound  in  its  vicious  abstrac- 
tion of  utility.1    This  unfits  it  for  a  general   explanation   of 
the  source  of  value.     Regardless  of  form  or  use,  in  Marx's 
scheme   things  would  be  valued  according  to  abstract  labor 
time.     As  a  result  of  such  a  theory  the  free  gifts  of  nature 
could  have  no  value;   and  so  with  anything  that  has  not  cost 
labor.     Marx  here  tries  to  meet  the  difficulty  by  drawing  an 
inconsistent  and  illogical  distinction  between  value  and  price, 
stating  that  such  things  may  have  a  price  but  not  a  value  ! 
On  the  other  hand  there  is  this  question :  Are  all  things  that  have 
involved  labor  valuable?     Marx  admits  that  such  things  may 
not  have  value.     He  says  that  they  must  be  socially  useful  to 
acquire  exchange  value.     But  where  such  is  the  case  he  seems 
arbitrarily  to  regard  the  labor  involved  as  being  useless,  over- 
looking the  fact  that  it  is  primarily  the  utility  of  the  com- 
modity that  decides. 

Marx  again  glides  over  the  utility  difficulty  by  assuming  a 
"  social  process  "  by  which  labor  is  directed  and  equated,  a 
process  which,  when  it  is  analyzed,  is  seen  to  operate  through 
utility.  One  cannot  get  away  from  the  question,  Why  do  men 
work?  Why  do  they  devote  labor  time  to  cotton  rather  than 
to  linen  ? 

(2)  But  in  the  second  place,  even  assuming  that  cost  alone 
can  explain  exchange  value,  it  is  not  true  that  costs  can  all  be 
reduced  to  labor.     The  claims  of  capital  must  be  met  even  in  a 

1  In  reality  Marx  scarcely  deals  with  utility  at  all,  his  "use-value"  appear- 
ing to  be  generally  thought  of  as  the  material  of  the  good  and  having  merely 
the  negative  quality  of  providing  a  body  for  the  abstract  labor-time  units. 


THE   FOUNDERS  OF  "SCIENTIFIC"  SOCIALISM        389 

collective  state,  they  being  based  primarily  on  the  economics 
of  the  situation.  Marx  did  not  go  back  far  enough  here.  His 
assumption  of  the  sufficiency  of  his  "  historic  concept "  of  cap- 
ital was  made  to  serve.  If  labor  alone  made  the  spindle,  the 
machinery  that,  in  turn,  helped  make  it,  and  finally  the  metal 
and  the  mine  appliances,  how  were  these  last  made  ?  The  ele- 
ment of  saving  and  waiting  is  there  and  it  must  be  paid  for, 
whether  private  ownership  exists  or  not.  Marx  assumes  that  his 
surplus  is  produced  by  labor.  This,  however,  cannot  be  proved ; 
and  unless  it  is,  it  does  not  indicate  any  exploitation  of  labor. 

(3)  Finally  the  reasoning  concerning  abstract  labor-power 
units  breaks  down  before  insuperable  differences  in  the  quality 
of  labor.1  We  are  virtually  told  that  as  entering  value  deter- 
mination the  labor  of  the  artist  may  be  equated  with  that  of  the 
hod-carrier  by  merely  taking  one  day  of  the  former's  exertion 
to  equal  twenty  or  thirty  of  the  latter's.  As  well  think  of  an 
ounce  of  canvas  from  the  masterpiece  as  equal  to  so  many  pounds 
of  mortar!  Labor  is  exerted  on  different  planes.  It  can  be 
reduced  to  a  common  basis  and  funded  only  by  eliminating  a 
large  part  of  the  laborers,  or  by  performing  the  impossible  feat 
of  adding  art  or  skill  to  brute  force  to  get  "  congelations  "  and 
"  crystals." 

The  foregoing  is  but  the  barest  sketch  of  the  leading  ideas  in 
Marx's  economic  doctrines.  Space  forbids  further  discussion  of 
the  numerous  merits  and  demerits  of  his  thought.2  Marx  was 

1  Cf.  Adam  Smith's  idea  of  an  average  labor  cost.     Above,  pp/i6g  f. 

2  A  sympathetic  statement  of  his  merits  is  the  following :  — 

"In  the  combination  of  learning,  philosophic  acumen,  and  literary  power, 
he  is  second  to  no  economic  thinker  of  the  nineteenth  century.  He  seems 
to  have  been  master  of  the  whole  range  of  economic  literature,  and  wielded 
it  with  a  logical  skill  not  less  masterly.  But  his  great  strength  lay  in  his 
knowledge  of  the  technical  and  economic  development  of  modern  industry, 
and  in  his  marvelous  insight  into  the  tendencies  in  social  evolution  deter- 
mined by  the  technical  and  economic  factors.  Whether  his  theories  in  this 
department  are  right  or  wrong,  they  have  suggested  questions  that  will 
demand  the  attention  of  economic  thinkers  for  a  long  time  to  come.  It  is 
in  this  department,  and  not  in  his  theory  of  surplus  value,  that  Marx's  sig- 
nificance as  a  scientific  economist  is  to  be  found."  (Kirkup,  History  of 
Socialism,  pp.  164-165.) 


390  ECONOMIC  THOUGHT 

a  learned  and  ingenious  writer,  and  possessed  of  a  good  deal  of 
dialectical  skill.  But  he  was  filled  with  a  preconceived  idea 
which  led  him  into  question-begging  assumptions  and  one-sided 
analyses.  He  took  certain  ideas  from  Smith  and  Ricardo, 
for  whom,  of  all  economists,  he  had  the  most  respect,  and,  rob- 
bing them  of  the  qualifications  made  by  those  writers,  applied 
them  hi  an  even  more  abstract  way  than  they  had  done. 

3.  Revisionists  or  Opportunists. —  Since  the  active  days  of 
Marx  and  Engels,  another  group  of  Socialists  has  arisen,  which 
may  be  called  opportunist  or  revisionist.  Its  members  are  not 
revolutionary,  but  "  evolutionary."  They  await  developments. 
Toward  the  doctrines  of  Marx  they  are  more  or  less  critical. 
Thus,  in  Germany,  Bernstein  criticizes  the  theory  of  surplus 
value,  and  denies  that  the  condition  of  the  laborers  is  going  from 
bad  to  worse,  or  that  capitalism 1  will  necessarily  collapse.  And 
he  is  far  less  materialistic  than  Marx.  Much  the  same  may 
be  said  of  Jaures  in  France.  In  England,  Sidney  Webb  is  the 
leading  "  Fabian  "  Socialist.  The  tendency  is  to  reject  both 
the  materialistic  interpretation  of  history  and  the  theory  of  sur- 
plus value,  while  accepting  the  doctrines  of  class  struggle,  in- 
ternationalism, and  the  socialization  of  the  instruments  of  pro- 
duction. 

The  Influence  of  the  Socialists. — The  influence  of  Social- 
istic writers  upon  economic  thought  has  been  a  very  important 
one.  Especially  is  this  true  of  Marx  and  Rodbertus,  though  it 
should  be  remembered  that  both  were  heavily  indebted  to  their 
predecessors.  The  effect  of  Socialistic  criticisms  can  be  fully 
appreciated  only  when  its  twofold  aspect  is  realized;  for,  in 
addition  to  its  direct  or  primary  results,  there  has  been  a  pro- 
found influence  which  might  be  called  reactional,  —  a  tacit 
tendency  so  to  modify  or  state  economic  doctrines  as  to  take 
the  ground  from  underneath  Socialism. 

i.  Direct  or  Primary  Effects.  —  (a)  In  the  first  place, 
among  the  primary  effects  of  Socialistic  thought  upon  eco- 

1  Die  Voraussetzungen  des  Sozialismus  (American  translation,  New 
York,  1909). 


THE  FOUNDERS  OF  "SCIENTIFIC"   SOCIALISM        391 

nomic  theory,  a  point  already  made  with  regard  to  the  earlier 
Socialists  should  be  reiterated.  The  so-called  "  scientific  Social- 
ists "  continued  and  strengthened  the  idea  that  social  insti- 
tutions are  of  historical  growth  and  relative  to  environment, 
particularly  Karl  Marx,  who  added  a  wealth  of  illustration 
from  industrial  history  to  strengthen  his  position.  This  idea 
was  potent  in  overthrowing  the  conceptions  of  nature  philosophy 
and  the  "  natural." 

(b)  The  Socialists  gave  greater  strength  to  such  tendency  as 
there  was  among  the  economists  to  take  the  social  viewpoint. 
As  already  stated,  they  emphasized  the  fact  that  modern  pro- 
duction involves  a  large  degree  of  cooperation  and  that  the  prod- 
uct is  to  that  extent  a  social  one.    A  similar  idea  appears  in 
the  doctrine  of  conjuncture.     And  in  their  ideas  concerning 
crises  and  overproduction  they  kept  to  the  front  the  concept 
of  social  utility,  as  contrasted  with  the  private,  individualistic 
viewpoint,  which  considered  exchange  value  alone. 

(c)  Socialistic  criticism,  moreover,  has  led  to  a  closer  analysis 
of  the  economic  functions  of  the  state.     Whether  collectivists, 
State  Socialists,  communists,  or  anarchists,  some  more  or  less 
radical  change  in  the  office  of  the  government  was  involved; 
some  alteration  in  the  scope  of  the  individual's  activity.    The 
discussion  of  such  topics  has  made  possible  a  more  accurate 
separation  of  those  activities  which  are  most  profitably  intrusted 
to  the  state  from  those  which  are  properly  private.     The  result 
has  been  a  saner  individualism  on  the  one  hand ;  while  men  are 
no  longer  alarmed  when  the  government  takes  over  some  branch 
of  industry  which  the  principles  of  politics  and  economics  show 
will  be  best  administered  for  the  public  welfare  when  in  public 
hands. 

(d)  Socialism,  too,  has  emphasized  the  problems  of  distri- 
bution as  contrasted  with  production,  and,  above  all,  has  kept 
the  question  of  distributive  justice  heavy  upon  our  consciences. 
It  must  not  be  thought  for  a  moment  that  economists  as  a  whole 
had  overlooked  this  question.     From  Adam  Smith  on,  some  had 
dealt  sympathetically  with  it,  while  others,  like  Senior,  had 
honestly  believed  —  and  perhaps  correctly  —  that  their  science 


392  ECONOMIC  THOUGHT 

would  make  most  progress  by  eliminating  such  questions,  leav- 
ing them  to  ethics  and  politics.  But  there  is  such  a  thing  as 
undue  abstraction  and  narrowness  in  this  regard.  The  Socialists, 
then,  with  their  charges  of  exploitation,  have  perhaps  done  a 
service  to  economists  by  causing  them  to  consider  the  question, 
What  is  a  just  wage? 

On  the  other  hand,  it  may  be  that  some  economists  have  been 
led  too  far  afield  in  discussing  such  problems,  that  is,  have 
unduly  broadened  the  field  of  discussion  open  to  economists 
as  such. 

(e)  Socialism  as  a  whole  has  brought  the  general  idea  of  un- 
earned income  into  prominence,  and  particularly  "  agrarian 
socialism,"  in  centering  attention  upon  landed  property,  has 
emphasized  the  "  unearned  increment  "  of  land. 

(/)  Undoubtedly  the  function  of  capital  and  the  nature  of 
profits  have  been  placed  in  a  clearer  light  on  account  of  Socialistic 
attacks.  It  is  most  obvious  that  the  refutation  of  arguments 
that  capital  is  merely  congealed  labor  and  that  profits  are  rob- 
bery, involved  a  more  careful  analysis  of  the  doctrines  of  Smith 
and  Ricardo  than  had  been  given  to  them  prior  to  the  days  of 
Rodbertus  and  Marx.  Even  the  writings  of  the  earlier  Socialists 
probably  had  some  direct  effect  in  this  way. 

But  somewhat  less  obvious  would  be  a  possible  negative  in- 
fluence upon  certain  theories.  It  is  possible  that  the  downfall 
of  the  wages-fund  doctrine  may  have  been  furthered  by  Socialistic 
criticism ; 1  while  the  separation  of  profits  from  interest  would 
be  encouraged,  partly  because  of  the  Socialist  emphasis  of  the 
non-productivity  of  capital,  partly  to  put  interest  in  a  better 
light.  Both  of  these  developments,  however,  would  have  come 
regardless  of  Socialism. 

2.  Secondary  or  Reactional  Effects.  —  (a)  By  way  of  reac- 
tion, Socialism  has  deeply  influenced  the  tone  and  emphasis 
of  economic  writings.  The  effects  here  referred  to  are  far  too 
subtle  to  be  pointed  out  in  detail.  One  cannot  read  the  works 
of  the  Austrian  school  or  of  Professor  J.  B.  Clark,  however, 
without  finding  evidence  of  what  is  meant.  To-day  there 
1  See  above,  p.  381,  and  below,  pp.  438  ff. 


THE  FOUNDERS  OF  "SCIENTIFIC"  SOCIALISM        393 

is  no  text-book  of  economics  but  that  gives  some  space  to  a 
criticism  of  Socialism,  and  here  and  there  stresses  some  point  in 
theory  as  running  counter  to  its  doctrines. 

(b)  Certain  particular  theories  have  probably  received  their 
present  emphasis,  in  part,  at  least,  from  a  desire  to  refute  Social- 
ism. For  illustration,  the  productivity  theory  of  distribution 
as  developed  by  the  Austrians  and  Professor  Clark  may  be  men- 
tioned. A  part  of  the  idea  seems  to  be  that  If  it  can  be  shown 
that  each  factor  of  production  gets  what  it  produces  the  problem 
of  distributive  justice  is  solved.1  And  so  it  is  with  the  utility 
side  of  value.  It  is  not  improbable  that  the  narrow,  labor-cost 
theories  of  the  Socialists  helped  bring  on  the  reaction  to  extreme 
marginal  utility  theories  beginning  in  the  seventies.2  This  would 
be  the  logical  result  of  the  narrow  and  extreme  way  in  which 
Marx  carried  the  doctrines  of  Smith  and  Ricardo  on  value  to  a 
reductio  ad  absurdum. 

Even  before  this,  as  has  already  been  suggested,  the  theory 
of  abstinence  was  doubtless  stimulated  as  a  result  of  Socialistic 
criticism;  and  in  later  days,  the  refinement  of  this  theory  as 
illustrated  by  the  adoption  of  such  concepts  as  those  of  "  sav- 
ing "  and  "  waiting  "  clearly  have  been  stimulated  by  the  at- 
tacks which  have  been  made  upon  the  doctrine  of  abstinence.3 

1  Which  idea  overlooks  the  difference  between  personal  and  functional 
distribution. 

2  See  below,  p.  445.    There  had  been  marginal-utility  theories  long  before, 
but  they  had  fallen  on  deaf  ears. 

8  E.g.  Lassalle's  classic  bit  of  irony  concerning  the  abstinence  of  Baron 
Rothschild.  Cf.  Bullock,  Principles  of  Economics,  3d  ed.,  p.  140. 


2.  THE  METHOD 

IN  the  hands  of  Ricardo  and  his  followers,  method  in  political 
economy  becomes  largely  deductive  and  abstract.  One  does 
not  have  to  read  far  in  the  works  of  M'Culloch,  James  Mill, 
and  De  Quincey  to  become  convinced  of  that.  And,  as  has  just 
been  seen,  John  Stuart  Mill  in  his  Political  Economy  tended  to 
perpetuate  the  method.  The  next  two  chapters  will  recount 
how  critics  of  this  method  arose.  They  attacked  the  method 
and  at  the  same  time  pointed  out  the  existence  of  narrowness 
and  fallacies  in  the  conclusions  of  the  Ricardians,  Smith  also 
coming  in  for  a  share  of  criticism,  though,  on  the  whole,  not  so 
large  a  one. 


394 


CHAPTER    XXIV 
CONCRETE-HISTORICAL    CRITICISM   IN   ENGLAND 

ONE  of  the  most  just  criticisms  of  the  English  Classical  School 
concerns  the  abstract  character  of  its  reasoning.  In  order  to 
weigh  rightly  this  criticism,  however,  it  is  essential  to  observe 
that  it  has  at  least  two  aspects,  and  that  they  vary  in  their 
importance.  Thus  it  is  one  thing  to  set  up  a  number  of  abstrac- 
tions and  then  to  proceed  as  though  they  were  the  concrete 
facts ;  but  it  is  another  matter  to  cut  away  certain  complica- 
tions with  the  idea  of  ascertaining  clearly  what  would  happen 
without  them,  consciously  leaving  the  introduction  of  any  com- 
plications desired  to  further  inquiry.  Too  often,  a  thinker 
begins  with  the  second  mode  of  procedure  only  to  become  blind 
to  the  complications,  and  so  to  end  in  the  narrowness  and  abso- 
lutism which  characterize  the  first  type.  But  this  need  not  blind 
one  to  the  legitimacy  and  the  advantages  of  the  second.  It 
has,  however,  blinded  certain  critics  in  whole  or  in  part ;  and, 
as  will  appear,  the  valid  and  the  invalid,  the  conscious  and  the 
unconscious  abstraction,  have  been  assailed  without  discrimina- 
tion. 

Some  of  the  reasons  for  the  abstract  character  of  the  early 
political  economists,  English  and  French,  have  been  referred 
to  in  discussing  those  men.  For  one  thing,  the  material  and 
machinery  for  effective  concrete  investigation  were  deficient. 
History  was  inadequate;  statistics  likewise.  Even  had  the 
material  existed  in  abundance,  there  is,  perhaps,  some  force 
in  Leslie's  point  that  the  canons  of  induction  had  not  been  de- 
veloped, that  branch  of  logic  being  then  an  inferior  instrument. 
The  outline  of  the  science  had  to  be  developed  in  order  to  cause 
a  demand  for  materials  to  complete  and  correct  it.  More  posi- 

395 


396  ECONOMIC  THOUGHT 

lively,  the  methods  of  the  other  sciences  were  influential.  In 
the  natural  sciences,  the  more  abstract  and  deductive  methods 
of  astronomy  were  the  pattern,  while  the  speculations  of  moral 
philosophy  gave  the  more  immediate  background.  Further- 
more, the  nature  philosophy  dominant  at  the  birth  of  political 
economy  begot  a  tendency  to  doctrinal  absolutism  that  easily 
resulted  in  undue  abstraction :  laisser  faire  was  made  a  law  of 
nature,  applicable  in  all  times  and  places,  —  and  forthwith 
its  existence  in  the  shape  of  free  competition  became  assumed 
as  more  than  an  hypothesis. 

To  be  sure,  there  is  much  historical  matter  in  the  Wealth  of 
Nations,  and  Smith's  method  is  by  no  means  entirely  deductive. 
And,  following  Smith,  Malthus  introduces  the  results  of  travel 
and  wide  historical  reading  in  his  Principles  of  Population. 
But  in  both  cases  the  facts  were  introduced  chiefly  to  illustrate 
a  priori  conclusions. 

This  tendency  to  undue  abstraction  reached  its  height  in  the 
Ricardian  school,  and  at  about  the  same  time  a  reaction  and 
criticism  of  it  appeared.  It  has  already  been  pointed  out  that 
nations  whose  circumstances  differed  from  those  of  England  — 
especially  Germany  and  the  United  States  —  took  issue  with 
generalizations  which  did  not  fit  their  concrete  conditions,  and 
the  Nationalists  arose.  This  line  of  objection  and  others  were 
then  developed  and  given  a  broad,  scientific  setting  by  the  Ger- 
man Historical  School.  In  the  present  chapter  are  to  be  traced 
similar  developments  in  the  land  of  Smithianism  and  Ricardian- 
ism.  It  should  be  pointed  out  in  advance  that  the  writers  to 
be  treated  do  not  form  a  "  school  "  as  did  the  German  historical 
economists.  Their  work  was  sporadic,  and,  as  will  be  seen,  was 
scattered  over  a  long  period  of  time. 

Though  merely  to  be  mentioned  here,  the  importance  of  the 
example  set  by  Darwin  and  Spencer  about  the  middle  of  the 
century  needs  to  be  remembered.  The  careful  study  of  facts 
was  stimulated  by  Darwin's  work  on  the  law  of  struggle  for  sur- 
vival ;  and  Spencer's  Social  Statics  (1850)  treating  of  the  evolu- 
tion of  society  through  natural  law  gave  further  impetus  to  the 
historical  idea. 


CONCRETE-HISTORICAL  CRITICISM   IN  ENGLAND        397 

John  Craig  and  John  Rooke  may  be  passed  over  with  a  word : 
The  latter  was  optimistic,  somewhat  inclined  to  refer  to  history, 
and  criticized  Ricardo  for  overlooking  temporary  and  concrete 
things ; l  the  former  in  his  Remarks  on  Political  Economy  (1821) 
argued  against  the  doctrine  that  wages  and  profits  must  vary 
inversely,  appealing  to  history  for  evidence.  Craig  also  was 
critically  inclined  toward  the  Ricardian  wage  and  rent  theories. 

Richard  Jones.  —  Richard  Jones  (1790-1855)  may  be  named 
as  the  first  important  rebel.  His  particular  point  of  attack  was 
the  Ricardian  doctrine  of  rent,  which  he  assailed  in  vigorous 
terms  in  his  Essay  on  the  Distribution  of  Wealth  and  on  the  Sources 
of  Taxation  (i83i).2  All  land  rents  he  divides  into  two  classes : 
peasant  rents  and  farmers'  rents.  The  former  are  determined 
solely  by  bargain  between  the  proprietor  and  a  set  of  laborers 
who  are  chained  to  the  soil  and  use  their  small  capital  to  get  a 
bare  living.  Jones'  contention  is  that  farmers'  rents  deserve 
the  exclusive  attention  given  to  them  only  as  a  scientific  problem 
affording  mental  gymnastics ;  if  the  number  of  people  concerned 
be  considered,  peasant  rents  are  far  and  away  the  more  impor- 
tant,— in  the  past  they  have  prevailed  everywhere,  and  are  the 
predominant  form  of  rent  now  (1831). 

The  abstract  assumptions  of  Ricardo's  teaching  are  pointed 
out  as  follows.  If  (i)  lands  were  first  appropriated  by  those 
willing  to  bestow  pains  on  cultivation,  and  (2)  if  there  were  free 
access  to  uncultivated  lands,  the  theory  would  hold;  "but  the 
past  history  and  present  state  of  the  world  yield  abundant  testi- 
mony, that  it  neither  is,  or  ever  has  been,  a  practical  truth,  and 
that  the  assumption  of  it  as  the  basis  of  a  system  of  political 
philosophy  is  a  mere  fallacy."  3  Jones  further  states  that  Ricar- 
dians  make  the  "  visionary  "  assumptions  that  (3)  while  there  is 
unoccupied  land,  no  rent,  except  in  proportion  to  superiority 
over  such  land,  exists,  and  that  (4)  rent  is  never  the  immediate 
result  of  cultivation.  Jones  also  denies  that  rent  increases  only 
through  the  resort  to  inferior  agricultural  investments,  his 

1  Principles  of  National  Wealth  (1825). 
*  Vol.  I.     No  other  appeared. 
3  Distribution  of  Wealth,  Chap.  I. 


398  ECONOMIC  THOUGHT 

argument  being  easily  triumphant,  —  as  he  sees  it,  —  since  he 
denies  diminishing  returns  on  the  ground  that  improvements 
in  the  arts  of  production  invalidate  it.1 

That  these  criticisms  do  not  touch  the  heart  of  the  theory 
of  rent  will  be  readily  recognized.  Properly  interpreted,  the 
third  Ricardian  assumption  is  correct  as  a  long-run  tendency, 
and  Jones  seems  to  be  in  error  in  putting  the  fourth  assumption 
into  the  mouth  of  Ricardo.  His  criticism  of  diminishing  returns, 
however,  brought  out  the  necessity  for  a  distinction  between 
the  historical  law  and  one  good  at  any  given  time.  His  chief 
service  in  this  connection  is  that  he  called  men's  attention  to  the 
fact  that  frequently  what  is  called  rent  is  not  economic  rent,  and, 
in  general,  pointed  out  that  the  rent  theory  as  commonly  stated 
rests  on  certain  abstractions  which  limit  its  application. 

In  this  same  work,  Jones  shows  that  where  peasant  rents 
obtain  the  interests  of  the  landlord  and  society  are  not  opposed ; 
and  he  criticizes  the  wages-fund  theory,  as  will  appear  later. 

Something  of  Jones'  purpose  and  method  are  revealed  in  the 
following  excerpt :  "  If  we  wish  to  make  ourselves  acquainted 
with  the  economy  and  arrangements  by  which  the  different  na- 
tions of  the  earth  produce  or  distribute  their  revenues,  I  really 
know  of  but  one  way  to  obtain  our  object,  and  that  is  to  look 
and  see."  2  And  in  1833  in  addressing  the  Indian  cadets  he 
said :  "  We  must  get  comprehensive  views  of  facts,  that  we  may 
arrive  at  the  principles  that  are  truly  comprehensive "  — 
otherwise  "  general  principles "  would  have  no  generality. 
This  spirit  is  to  some  extent  illustrated  in  an  article  on  "  Primi- 
tive Political  Economy  of  England  "  published  in  the  Edinburgh 
Review  for  1847.  Here  he  gives  an  account  of  Mercantilism 
which  is  still  worth  reading. 

Jones  was  little  known  to  the  outside  world,  but  after  1859, 

1  Ibid.,  p.  199. 

*  Introductory  Lecture  at  King's  College,  Literary  Remains,  p.  569. 
Professor  Marshall  has  pointed  out  that  Jones  did  not  sufficiently  distin- 
guish between  generality  of  conception  and  method  on  the  one  hand,  and 
generality  of  doctrine  on  the  other.  (Old  Generation  of  Economists  and  the 
New,  Quar.  Jr.  Econ.  XI,  116.) 


CONCRETE-HISTORICAL  CRITICISM  IN  ENGLAND        399 

when  his  Literary  Remains  were  published  through  the  activity 
of  Dr.  Whewell,  he  powerfully  affected  the  minds  of  many  Eng- 
glish  students. 

Shortly  following  Jones'  criticism  came  that  of  the  American 
John  Rae  (1834)  to  which  reference  has  already  been  made.1 
On  the  basis  of  Bacon's  Novum  Organum,  he  formulated  certain 
canons  of  inductive  science,  and  showed  that  Adam  Smith's 
thought  was  not  truly  inductive. 

Walter  Bagehot  (1826-1877),  banker  and  son  of  a  banker, 
and  editor  of  the  Economist,  was  an  admirable  combination  of 
student  and  man  of  affairs.  Though  more  inclined  to  follow 
Ricardo  than  any  other  writer  to  be  mentioned  in  this  chapter, 
he  was  kept  from  undue  abstraction,  and  his  great  service  was 
to  show  the  relation  between  facts  and  theories,  especially  in 
reconciling  economics  and  history.2 

Bagehot's  only  notable  thought  on  the  material  of  pure  theory 
concerns  the  entrepreneur  or  employing  capitalist.  His  func- 
tions and  importance  are  stated  in  some  detail,  and  Bagehot 
was  in  advance  of  English  economists  in  this  matter.  He  insists 
that  the  costs  of  production  are  entrepreneur's  expenses,  of  which 
he  gives  a  peculiar  and  erroneous  analysis.3  His  greatest  posi- 
tive contributions  to  economic  thought  lie  in  the  field  of  money 
and  banking. 

But  here  the  chief  concern  with  Bagehot  is  his  treatment  of  the 
method  and  scope  of  political  economy.  For  one  thing,  he 
limited  the  application  of  the  science  to  conditions  such  as  pre- 
vailed in  a  well-developed  exchange  economy :  "  The  science  of 
Political  Economy  as  we  have  it  in  England  may  be  defined  as 

1  Above,  p.  300. 

2  Bagehot's  writings  are  as  follows :  — 
International  Coinage.      1869. 

Depreciation  of  Silver  (1877).     Reprinted  from  Economist. 
Lombard  Street  (1873). 

Economic  Studies,  a  collection  of  his  essays,  published  1880. 
The  English  Constitution. 
Essays  on  Parliamentary  Reform. 
Physics  and  Politics  (1872). 
*  Economic  Studies,  chapter  on  "Cost  of  Production." 


400  ECONOMIC  THOUGHT 

the  science  of  business,  such  as  business  is  in  large  productive 
and  trading  communities."  This  science  he  recognized  as  a 
product  of  developments  dating  from  the  Industrial  Revolution. 
There  had  been  a  pre-economic  age  when  the  assumptions  now 
made  would  not  apply.  He  was  among  the  first  of  English  econ- 
omists to  appreciate  the  idea  of  evolution  in  connection  with 
social  science.  (In  these  matters  Sir  Henry  Maine  was  to 
Bagehot  what  Savigny  was  to  the  German  historical  econ- 
omists.) This  fact  appears  clearly  in  his  work  on  Physics  and 
Politics  (1872),  in  which  he  discusses  the  evolution  from  a 
pre-economic  to  an  economic  age.  In  this  same  work  he  brings 
out  the  force  of  custom  as  limiting  competition.  In  fact,  Bage- 
hot states  that  there  are  three  valid  objections  to  the  English 
political  economy :  it  is  too  often  put  forward  as  explaining  the 
principal  —  or  even  all  —  causes  of  wealth  in  all  societies ; 
it  is  too  abstract ;  there  is  not  enough  verification.  Moreover,  he 
saw  that  competition  did  not  always  work  for  the  best  interests 
of  mankind. 

But  Bagehot  did  not  desire  to  abandon  the  deductive  method 
nor  abstraction.  "  The  process  by  which  physical  science  has 
become  what  it  is,  has  not  been  that  of  discarding  abstract 
speculations,  but  of  working  "  them  out.  More  verification  is 
needed.  Rightly  understood,  the  historical  and  abstract  meth- 
ods are  not  in  conflict.  The  complexity  and  ceaseless  change  of 
modern  economic  life  make  a  complete  record  of  industry  im- 
possible ;  statistics  are  a  "  scrap  of  scraps." 

Though  an  admirer  of  Ricardo,  Bagehot  was  not  blind  to  that 
writer's  tendency  to  reason  about  abstract  things  as  though  they 
were  real :  "  He  [Ricardo]  thought  he  was  considering  actual 
human  nature  in  its  actual  circumstances,  when  he  was  really 
considering  a  fictitious  nature  in  fictitious  circumstances." x 
Of  James  Mill  he  says :  "  He  would  have  shuddered  at  our 
modern  conception  of  Political  Economy  as  a  convenient  series 
of  deductions  from  assumed  axioms  which  are  never  quite  true, 
which  in  many  times  and  countries  would  be  utterly  untrue, 
but  which  are  sufficiently  near  to  the  principal  conditions  of  the 

1  Ibid.,  p.  157. 


CONCRETE-HISTORICAL   CRITICISM  IN  ENGLAND       401 

modern  world  to  make  it  useful  to  consider  them  by  them- 
selves." 

Leslie.  —  In  several  respects  the  successor  of  Richard  Jones 
was  the  Irish  economist,  Edward  Cliff e  Leslie  (1825?- 1882). 
He  was  educated  at  King  William's  College,  Isle  of  Man,  and 
Trinity  College,  Dublin,  where  he  was  greatly  influenced  by  the 
lectures  of  Sir  Henry  Maine.  In  his  writings,  he  carries  Maine's 
historical  method  over  into  political  economy.  He  was  also  a 
reader  of  Comte,  and  knew  the  German  Historical  School 
through  the  works  of  Roscher  and  Knies. 

Leslie's  chief  work  is  collected  in  two  volumes  of  essays: 
Land  Systems  and  Industrial  Economy  of  Ireland,  England,  and 
Continental  Countries  (1870) ;  and  Essays  in  Moral  and  Political 
Philosophy  (1879).  His  positive  contributions  concerned  prices, 
wages,  distribution  of  precious  metals,  and  agrarian  problems. 
His  attack  on  the  wages-fund  theory  will  be  mentioned  in  an- 
other chapter. 

But  Leslie's  significance  lies  in  the  negative  or  destructive 
work  he  did,  notably  his  opposition  to  abstract,  a  priori  methods 
in  political  economy.  Ricardo,  he  says,  in  his  "  laws  "  of  natural 
wages,  profits,  and  prices,  ignored  the  essential  difference  between 
stationary  and  progressive  societies.  Had  the  economists,  for 
example,  in  place  of  reasoning  from  an  assumption,  examined 
the  facts,  great  inequalities  in  wages,  even  within  the  same 
occupation,  would  have  been  recognized.  In  Leslie's  eyes,  as 
in  those  of  the  German  Historical  School,  man  is  not  a  mere 
exchanging  animal  —  a  personification  of  an  abstraction ;  "  he 
is  the  actual  human  being  such  as  history  and  surrounding  cir- 
cumstances have  made  him,  with  all  his  wants,  passions,  and 
infirmities." 

Pure  deduction,  he  held,  had  betrayed  Ricardians  into  "  enor- 
mous fallacies,"  from  which  Smith's  element  of  induction  had 
saved  him,  such  as  the  doctrine  of  equalized  wages  and  profits 
and  the  theory  that  the  rate  of  profits  cannot  rise  except  by  a 
fall  in  wages. 

Leslie  strove  valiantly  to  dispel  what  he  termed  "  the  ancient 
mist  of  realism,"  that  is,  the  practice  of  confusing  several  ideas 

3D 


402  ECONOMIC  THOUGHT 

in  one  word.  Thus  he  argued  that  the  "wages-fund  "  was  an 
imaginary  category;  that  "private  interest"  is  merely  a  col- 
lective term  for  a  number  of  individual  wants,  wishes,  and  tastes 
which  vary  with  time  and  place;  it  is  confused,  too,  with  the 
phrase,  "  desire  for  wealth,"  which,  in  turn,  stands  for  a  mul- 
tiplicity of  ideas.1  Even  such  a  word  as  "  emigration,"  Leslie 
shows,  has  been  used  to  confuse  a  healthful  movement  such  as  is 
effective  in  raising  wages,  with  an  ineffective  and  harmful  one 
resulting  from  evil  institutions. 

The  opinion  that  political  economy  had  been  prostituted  to 
the  ends  of  class  interest  was  pretty  clearly  expressed  by  Leslie. 
Smith,  he  says,  could  not  have  foreseen  how  "  '  the  progress  of 
opulence  '  would  govern  the  interpretation  of  his  doctrines,  or 
how  the  system  he  promulgated  as  the  system  of  liberty,  justice, 
and  divine  benevolence,  would  be  moulded  into  a  system  of 
selfishness  by  '  the  private  interests  and  prejudices  of  particular 
orders  of  men.'  "2  Again  he  states:  "  Instead  of  a  science  of 
wealth,  they  give  us  a  science  for  wealth."  3 

This  broad-minded  economist  vigorously  opposes  the  utilita- 
rianism of  the  economists  of  his  day.  Happiness  cannot  be  the 
ultimate  and  only  test :  if  it  is  better  to  be  a  sad  philosopher  than 
a  merry  fool,  as,  according  to  Mill,  all  men  of  elevation  admit, 
then  there  must  be  something  more  desirable  than  mere 
happiness.  Leslie  thinks  that  "  the  progressive  improvement 
of  living  creatures  "  is  the  best  purpose  the  world  contains. 

He  does  not,  however,  escape  one  of  the  weaknesses  of  the 
historical  school.  The  negative  character  of  his  work  has  been 
mentioned,  and  his  tendency  is  to  leave  us  without  definite 
conclusions.  Political  economy  to  him  was  "  an  assemblage 
of  speculations  and  doctrines  which  are  the  result  of  a  particular 
history."  He  believed  that  "  no  complete  and  final  philosophy 
of  life  and  human  aims  has  been  constructed;  that  the  world 
abounds  in  unsoluble  problems,  and  man's  ideal  of  virtue  is  both 
historical  and  progressive."  In  short,  Leslie  was  inclined  to 
deny  any  validity  to  economic  "  laws." 

1  Land  Systems,  etc.,  pp.  85  ff. 

1  Essays,  p.  149.  »  Land.  Systems,  p.  89.. 


CONCRETE-HISTORICAL  CRITICISM  IN  ENGLAND        403 

It  is  not  true,  however,  that  he  denied  a  place  to  the  deductive 
method :  "  by  combining  the  closest  observation  of  phenomena 
with  the  boldest  use  of  speculation  and  scientific  hypothesis,"  1 
other  sciences  had  progressed.  His  whole  contention  is  admir- 
ably formulated  in  the  following  quotation :  political  economy's 
"  fundamental  laws  ought  to  be  obtained  by  careful  induction, 
that  assumptions  from  which  an  unreal  order  of  things  and  unreal 
uniformities  are  deduced  cannot  be  regarded  as  final  or  adequate ; 
and  that  facts,  instead  of  being  irrelevant  to  the  economist's 
reasoning,  are  the  phenomena  from  which  he  must  infer  his  gen- 
eral principles,  and  by  which  he  ought  constantly  to  verify  his 
deductions."  :  This  may  be  profitably  compared  with  Senior's 
views.3 

It  is  to  be  remembered  that  final  judgment  can  only  with 
difficulty  be  pronounced  concerning  Leslie's  thought;  for  the 
work  which  was  to  have  set  forth  his  ideas  systematically  was 
lost  while  in  manuscript  form.  This  severe  blow  is  known  to 
have  hastened  his  death. 

Ingram.  —  John  Kells  Ingram  (1824-1907)  was,  like  Leslie, 
an  Irish  economist  in  Trinity  College,  Dublin;  and  his  views 
are  in  many  respects  identical  with  his  countryman's.  His 
chief  works  are  an  address  on  The  Present  Position  and  Pros- 
pects of  Political  Economy  (1878),  and  A  History  of  Political 
Economy,  originally  published  as  the  article  on  political  economy 
in  the  Encyclopedia  Britannica.  Ingram  complains  that  the 
classical  doctrines  are  "  homogeneous  with  the  school  logic, 
with  the  abstract  unhistorical  jurisprudence,  with  the  a  priori 
ethics  and  politics,  and  other  similar  antiquated  systems  of 
thought."  4  They  are  too  individualistic,  unmoral,  and  con- 
sider exchange  value  too  exclusively.  We  must  base  our  studies 
more  on  modern  physics  and  biology.  The  old  abstract  formulae 
that  all  men  desire  wealth  and  dislike  exertion,  must  be  given  up : 
"  The  laws  of  wealth  must  be  inferred  from  the  facts  of  wealth, 
not  from  the  postulate  of  human  selfishness."  However,  "  re- 
flective analysis  "  will  be  continually  used :  ascertained  truths 

1  Essays,  p.  378.  *  See  above,  p.  264. 

1  Land  Systems,  p.  358.  *  History,  p.  240. 


404  ECONOMIC  THOUGHT 

respecting  human  nature  may  be  used  as  guides ;  and,  occasion- 
ally, a  deliberately  instituted  hypothesis  may  be  legitimate. 

Ingram  was  an  outspoken  follower  of  the  philosopher,  Auguste 
Comte,  from  whom  he  professed  to  draw  his  inspiration,  though 
he  was  perfectly  familiar  with  the  German  Historical  School.1 

Toynbee.  —  Arnold  Toynbee  (1852-1883)  should  not  be 
forgotten  among  the  concrete-historical  critics.  A  young  man 
when  he  died,  his  views  had  scarcely  ripened,  and  his  frag- 
mentary writings  sometimes  show  signs  of  haste  and  even  incon- 
sistency.2 

All  his  work  was  colored  by  an  earnest  and  enthusiastic  de- 
sire for  social  reform,  and  he  made  a  special  study  of  poverty 
and  the  labor  problem,  frequently  addressing  labor  meetings. 
He  was  a  pioneer  in  settlement  work. 

The  final  collapse  preceding  Toynbee's  untimely  death  was 
brought  on  by  one  of  his  numerous  speeches,  this  particular  one 
being  directed  against  the  doctrines  of  Henry  George. 

Toynbee  shows  the  relativity  of  the  doctrines  of  the  Classical 
School,  making  a  survey  of  industrial  history  and  bringing  out 
the  effects  of  the  local  setting  on  Smith,  Malthus,  and  Ricardo. 
He  then  urges  that  democracy  has  made  man  deal  with  the  ques- 
tion of  a  better  distribution  of  wealth ;  economists  must  answer 
the  question,  whether  the  mass  of  workers  can  raise  themselves 
under  present  conditions  of  competition  and  private  property. 
Ricardo  and  Henry  George  answer,  no.  He  cites  statistics 
showing  that  real  wages  have  risen,  to  "  disprove  Ricardo's 
proposition  that  no  improvement  is  possible."  In  stating  that 
interest  tends  to  fall,  Ricardo,  he  says,  had  overlooked  the 
possibilities  of  expansion  in  the  field  of  investment;  and  he 
denies  the  Ricardian  laws  as  to  the  tendencies  of  rent,  wages, 
and  profits. 

1  His  position  is  most  clearly  and  concisely  stated  in  his  preface  to  the 
English  edition  of  Ely's  Introduction  to  Political  Economy,  London,  1891. 

2  His  published  writings  are  embraced  in  a  volume  of  Lectures  containing 
essays  on  "Ricardo  and  the  Old  Political  Economy,"  "The  Industrial  Revo- 
lution," and  popular  addresses  on  "  Wages  and  Natural  Law,"  "  Industry 
and  Democracy,"  "Are  Radicals  Socialists?"  etc. 


CONCRETE-HISTORICAL  CRITICISM   IN  ENGLAND       405 

Toynbee  shows  his  optimism  in  believing  improvement  com- 
patible with  the  present  social  order,  urging  that  since  1846 
free  trade,  factory  legislation,  trade  unions,  and  cooperative 
societies  had  caused  higher  wages.  He  hopes  much  from  moral 
progress  and  self-help,  and  also  advocates  an  extension  of  gov- 
ernment ownership  and  public  housing.  He  is  not,  however, 
a  Socialist,  for  he  accepts  private  property  and  repudiates  all 
confiscation  and  violence. 

Some  noteworthy  characteristics  of  his  thought  appear  in  his 
emphasis  of  the  distinction  between  theory  and  practical  science 
or  art ;  of  that  between  what  is  and  what  ought  to  be ;  of  the 
force  of  custom;  and  of  the  relativity  of  human  nature  — 
"  it  slowly  changes,  and  is  modified  by  higher  ideals." 

His  stand  on  the  point  of  method  may  be  summed  up  by  stat- 
ing that  while  criticizing  the  overuse  of  deduction,  he  saw  no 
real  opoosition  between  it  and  the  historical  method. 

Thorold  Rogers.  —  Finally,  Professor  James  E.  Thorold 
Rogers  (1823-1890)  must  be  mentioned  to  complete  the  account 
of  the  earlier  historical  reaction  in  England.  Rogers  was  in 
spirit  somewhat  more  akin  to  Jones  and  Bagehot  than  to  Leslie 
and  Ingram,  with  their  greater  emphasis  on  ethics.  Thus  he 
more  nearly  followed  the  classical  doctrines,  while  making  a 
departure  in  the  direction  of  careful  historical  and  statistical 
investigation.  His  best-known  work,  the  celebrated,  though  not 
uncriticized  History  of  Agriculture  and  Prices  in  England  (1866- 
1882),  is  a  monument  of  patient  research.  Others  are,  Manual 
of  Political  Economy  (1868) ;  Six  Centuries  of  Work  and  Wages 
(1884) ;  The  First  Nine  Years  of  the  Bank  of  England  (1887) ; 
and  The  Economic  Interpretation  of  History  (1888).  Rogers 
took  up  economics  under  Cobden's  influence  and  was  also 
affected  by  Bastiat;  therefore  he  might  be  classed  with  the 
Manchester  School  in  so  far  as  that  school's  peculiar  tenets  are 
concerned.  He  was  opposed  to  what  he  believed  to  be  the  Ri- 
cardian  doctrine  of  rent,  however,  laying  emphasis  upon  the  situ- 
ation element  and  upon  the  fact  that  a  movement  from  more  to 
less  fertile  lands  is  not  shown  by  history.  Indeed,  Rogers  was 
very  scornful  toward  Ricardo  and  his  followers.  The  following 


406  ECONOMIC  THOUGHT 

quotations  show  his  spirit :  "  By  this  historical  study,  I  began 
to  discover  that  much  which  popular  economists  believe  to  be 
natural  is  highly  artificial ;  that  what  they  call  laws  are  too  often 
hasty,  inconsiderate,  and  inaccurate  inductions ;  and  that  much 
which  they  consider  to  be  demonstrably  irrefutable  is  demon- 
strably  false.  . . .  Two  things  have  discredited  political  economy 
—  the  one  its  traditional  disregard  for  facts ;  the  other,  its 
strangling  itself  with  definitions."  l 

Summary.  —  It  would  be  a  serious  error  to  fail  to  remark 
sufficiently  upon  the  differences  among  the  writers  mentioned  in 
this  chapter.  From  the  point  of  view  of  method  and  of  relation 
to  the  classical  political  economy,  however,  there  is  considerable 
unity  among  them.  Thus,  without  exception,  they  show  some 
appreciation  of  the  historical  method,  though  Bagehot  would 
so  limit  the  definition  of  political  economy  as  to  make  more 
place  for  abstraction  and  deduction  than  the  others.  The  in- 
fluence of  Sir  Henry  Maine  has  been  noticed,  being  marked  and 
direct  in  the  case  of  Leslie  and  of  Bagehot. 

In  accord  with  this  historical  attitude  is  a  common  revolt 
against  abstraction.  All  would  limit  it  in  some  way  or  other. 
All  call  for  more  verification,  —  more  concreteness.  All  criticize 
the  economists,  though  Leslie  and  Rogers  go  far  in  defending 
Smith,  and  Bagehot  is  inclined  to  follow  Ricardo  in  some  matters. 

In  each  case,  some  one  or  more  particular  doctrines  of  the 
Ricardians  is  attacked  in  a  monograph  or  essay.  Not  one  accepts 
the  wages-fund  theory ;  all  but  Bagehot  assail  it.  The  same  can 
be  said  concerning  the  Ricardian  theory  of  the  relation  between 
wages  and  profits.  Jones,  however,  largely  concentrates  his 
criticism  on  the  rent  theory;  Bagehot,  on  cost  of  production; 
Leslie,  on  the  abstract  assumptions,  like  that  of  a  universal 
desire  for  wealth,  and  on  the  wages  theory;  Toynbee,  on  the 
movement  of  wages  and  profits ;  Ingram,  on  method. 

The  group  is  characterized  by  a  rather  clear  tendency  to 
optimism.  All  its  members  are  either  critical  or  hostile  to 
Malthusianism.  Jones  and  Toynbee  reject  what  they  under- 
stand as  the  law  of  diminishing  returns.  Holding  that  social 
1  Econ.  Inter  p.  of  Hist.,  Preface. 


CONCRETE-HISTORICAL  CRITICISM  IN   ENGLAND        407 

institutions  are  potent  in  the  field  of  distribution,  as  they  were 
inclined  to  do,  there  was  ground  for  hopefulness.  Three  of  the 
later  writers,  at  least,  believed  in  the  relativity  and  progress 
even  of  "  human  nature  "  and  morals  themselves. 

These  same  three  men  —  Leslie,  Toynbee,  Ingram  —  desired 
a  close  relation  between  political  economy  and  other  social 
sciences. 

These  men  deserve  an  honorable  place  in  the  history  of  eco- 
nomic thought.  Though  they  left  no  important  general  treatise,1 
and  their  main  significance  is  negative,  they  supplied  a  much- 
needed  corrective  to  English  political  economy.  They  stood  for 
breadth  or  concreteness,  or  both.  True,  with  the  exception  of 
Bagehot,  they  entertained  vain  hopes  for  the  establishment  of  a 
new  political  economy;  but  what  they  really  achieved  was  a 
better  and  more  human  economics. 

1  Rogers'  Manual  is  little  more  than  a  primer. 


CHAPTER  XXV 
THE  GERMAN  HISTORICAL  SCHOOL* 

DURING  the  middle  years  of  the  nineteenth  century  there  arose 
in  Germany  an  almost  violent  reaction  against  the  dominant 
economics  of  Smith  and  Ricardo.  This  reaction  found  its  chief 
expression  in  criticism  of  the  philosophy  and  the  methods  of  the 
earlier  economists.  It  came  about  somewhat  in  this  way. 

Circumstances  giving  rise  to  the  School.  — Important  develop- 
ments had  recently  taken  place  in  the  world  of  thought  outside 
of  economics.  Among  the  more  remote  of  these  was  the  phi- 
losophy of  Hegel.2  Hegelianism  as  a  social  theory  regards  the 
course  of  culture  as  an  unfolding  of  the  human  spirit,  as  a 
sort  of  inherent  self-development  moving  in  an  innately  deter- 
mined cycle.  It  contains  a  remarkable  idea  of  evolution,  — 
though  not  of  evolution  in  the  Darwinian  sense,  —  and  its  influ- 
ence is  apparent,  as  will  be  seen,  in  the  thought  of  at  least  one  of 
the  Historical  School. 

The  economist  and  political  scientist,  Lorenz  von  Stein  (1815- 
1890),  was  influential  in  applying  Hegelian  ideas  to  economics. 
A  professor  at  Vienna  from  1855  to  1888,  Stein  was  a  stimulating 
teacher  and  writer  who  combined  a  knowledge  of  French  Social- 
ism, and  a  realization  of  the  interrelation  of  philosophy,  eco- 

1  In  what  follows,  the  historical  method,  as  such,  is  emphasized.     Several 
of  the  historical  school  were  keen  theorists  and  wrote  valuable  works  dealing 
with  economic  theory;    but  their  significance  for  this  chapter  lies  in  their 
revolt  in  method. 

2  Hegel's  Logic  was  published  1812-1816;    Philosophy  of  Right,  1820. 
See  Encyclopedia  Britannica,  "  Ethics  " :  "  the  essence  of  the  universe  is  a 
process  of  thought  from  the  abstract  to  the  concrete ;   .   .   .  the  history  of 
mankind  is  a  history  of  the  necessary  development  of  the  free  spirit  through 
the  different  forms  of  political  organization." 

408 


THE  GERMAN  HISTORICAL  SCHOOL  409 

nomics,  and  law,  with  a  considerable  touch  of  the  historical  idea. 
He  may  be  regarded  as  transitional  from  German  classicism  to  a 
more  advanced  historical  and  social  viewpoint.1 

Of  more  immediate  importance  were  developments  in  juris- 
prudence and  philology.  In  the  former  science  the  work  of 
Eichorn  and  Savigny  was  of  notable  effect.  These  men  taught 
that  juristic  systems  are  of  relative  validity  only ;  that  they  are 
the  product  of  the  social  conditions  in  which  they  arise ;  and  that 
what  is  just  and  proper  at  one  stage  may  be  the  reverse  at  an- 
other. And  at  the  same  time,  in  the  domain  of  the  languages, 
the  laws  of  comparative  philology  were  being  formulated,  so  that 
in  the  evolution  of  words  and  the  methods  of  tracing  that  evolu- 
tion there  were  suggestions  for  a  comparative  method  of  study- 
ing economics. 

Bases  for  the  new  movement  were  also  laid  in  the  social  and 
political  developments  of  contemporary  Germany.  The  Zoll- 
verein  had  been  established  in  1833,  and  German  nationalism 
was  on  the  rise.  New  and  complicated  industrial  problems  had 
come,  especially  the  labor  problem,  and  these  clamored  for  a 
solution  which  the  Classical  School  did  not  afford.  A  confusion 
of  conflicting  ideas  prevailed,  while  the  old  leaders,  as  Hildebrand 
said,  were  silent.2 

Muller  and  List  had  already  expressed  nationalistic  ideas,  and 
had  made  a  limited  use  of  historical  comparison ;  but  they  were 
partisans,  and  their  historical  knowledge  was  imperfect.  Already 
the  characteristic  tendency  of  several  German  economists  to 
emphasize  nationality,  moral  forces,  and  the  place  of  govern- 
mental activity  has  been  observed.  What  the  members  of  the 
Historical  School  did  was  to  take  all  these  tendencies,  and  acting 
under  the  stimuli  just  mentioned,  to  formulate  them  hi  a  broad, 
scientific  way,  while  concentrating  attention  upon  the  problem 
of  method. 

The  thinkers  of  the  new  school  saw  that  economic  life  is  not 
isolated  from  political  and  social  life,  but  has  close  connections 

1  Stein  wrote  Socialismus  u.  Kommunismus  des  heutigen  Frankreich  (1843), 
Lehrbuch  der  National  Oekonomie  (1858),  and  other  works. 

2  Die  Nationalokonomie  der  gegenwart  und  Zukunft. 


410  ECONOMIC  THOUGHT 

with  all  civilization ;  that  it  is  not  the  same  with  all  men,  but 
varies  in  different  societies  and  nations  under  different  circum- 
stances and  at  different  times.  They  revolted  against  the  one- 
sided and  rationalistic  doctrines  of  their  predecessors,  and  pro- 
ceeded to  formulate  an  "  historical  method "  for  political 
economy. 

It  is  essential  to  an  understanding  of  the  historical  movement 
in  Germany,  to  distinguish  between  the  older  group  which  origi- 
nated that  movement,  and  the  younger  group  which  carried  the 
tendency  further,  even  going  to  extremes.  The  older  group  was 
largely,  though  not  entirely,  negative  in  its  thought,  in  so  far 
as  method  was  concerned.  Its  members  were  attacking  and  tear- 
ing down  the  faulty  abstract-deductive  methods  which  they 
found  predominant,  and,  while  they  formulated  a  method  of  their 
own,  and  their  spirit  of  free  investigation  had  most  valuable 
positive  results,  still  the  negative  aspect  of  their  work  bulks  very 
large.  They  did  not  deny  the  existence  of  laws  in  economics, 
but  they  attacked  absolutism  and  abstract  deduction  from  ideal 
postulates.  The  younger  group  sought  to  develop  and  apply 
the  historical  method  further,  and  in  so  doing  they  took  a  posi- 
tive stand  that  the  older  group  would  not  have  sanctioned. 
They,  too,  carried  on  a  negative  work ;  but  this  had  been  largely 
done  for  them,  and  in  their  several  ways  they  took  it  as  their 
task  to  get  more  positive  results  from  a  pretty  exclusive  appli- 
cation of  their  method.  They  differed  from  the  older  group 
in  that  they  denied  the  existence  of  natural  laws  in  economics. 
As  will  appear,  they  have  lately  undergone  a  modification  of 
spirit  in  the  direction  of  greater  breadth. 

The  Older  or  More  Negative  Historical  Group.  —  First  among 
the  German  historical  economists  came  Wilhelm  Roscher  (1817- 
1894),  professor  at  Gottingen  and  Leipzig.  Roscher  thoroughly 
understood  the  classical  school,  and  in  his  positive  theoretical 
writing  was  at  one  with  it.  Perhaps  as  a  result  he  was  the 
author  of  one  of  the  few  well-balanced  German  treatises  on 
economics.  In  his  now  famous  Grundriss  zu  Vorlesungen  iiber 
die  Staatswissenschaft  nach  Geschichtlicher  Methode  (Outline  of 
Lectures  on  Political  Science  according  to  the  Historical 


THE  GERMAN  HISTORICAL  SCHOOL  411 

Method),  published  in  1843,  however,  he  laid  down  the  follow- 
ing program : 1  — 

1.  Political  economy  is  a  science  which  can  only  be  explained 
in  the  closest  relation  to  other  social  sciences,  especially  the  his- 
tory of  jurisprudence,  politics,  and  civilization. 

2.  A  people  is  more  than  the  mass  of  existing  individuals,  and 
an  investigation  of  its  economy  cannot,  therefore,  be  based  upon 
a  mere  observation  of  present-day  economic  relations. 

3.  In  order  to  derive  laws  from  the  mass  of  phenomena,  as 
many  peoples  as  possible  should  be  compared.     Ancient  peoples, 
having  run  their  full  course,  are  peculiarly  instructive;    and 
similarities  between  the  old  and  the  new  are  especially  fruitful. 

4.  The  historical  method  will  be  slow  to  praise  or  blame 
economic  institutions,  for  there  have  been  few  that  were  entirely 
good  or  entirely  bad  for  all  peoples. 

Accordingly,  Roscher  denied  absolute  truth  as  to  general 
economic  laws :  "  general  principles  "  are  necessarily  incom- 
plete abstractions.  He  would  have  recognized  only  national 
economics,  holding  that  each  people  and  each  age  has  its  own 
peculiar  economy.  The  economist  should  thus  confine  himself 
to  the  statement  of  rules  of  government  which  are  applicable  to 
his  particular  economy  and  are  based  on  a  study  of  various  stages 
of  industrial  evolution. 

Roscher  shows  clear  evidence  of  the  influence  of  Hegelianism.2 
The  history  of  a  nation  is  the  unfolding  of  the  human  spirit :  it 
is  a  cycle,  repeating  itself  in  different  ages.  The  province  of 
economics  is  to  determine  the  laws  of  this  process  from  the  eco- 
nomic viewpoint.  This  idea  is  probably  to  be  regarded  as  having 
a  taint  of  error,  for  there  is  no  proof  of  the  existence  of  any  such 
cultural  laws  as  it  assumes.  It  is  surely  overidealistic  to  regard 
environmental  conditions  as  mere  disturbing  elements  in  a  self- 
development  cycle,  as  Roscher  sometimes  seems  inclined  to  do. 

The  next  apostle  of  the  historical  method  was  Bruno  Hilde- 

1  Vorrede  (preface).     A  full  translation  may  be  found  in  the  Quarterly 
Journal  of  Economics,  October,  1894.     On  Roscher  see  also  the  excellent 
article  by  Oncken  in  Palgrave's  Dictionary  of  Political  Economy. 

2  Veblen,  "  Gustav  Schmoller's  Economics,"  Quart.  Jr.  Econ.,  1901. 


4I2  ECONOMIC  THOUGHT 

brand  (1812-1878),  whose  book,  Die  Nationaltikonomie  der 
Gegenwart  und  Zukunft  (The  National  Economy  of  the  Present 
and  Future),  appeared  in  I848.1  Hildebrand  writes  brilliantly 
and  clearly,  but  his  profundity  seems  much  less  than  Ingram, 
for  instance,  ascribes  to  him.  His  criticism  of  Socialism  is  ad- 
mirable, but  he  shows  a  lack  of  thorough  understanding  of  the 
founders  of  the  Classical  School. 

Hildebrand  opens  with  the  explanation  that  his  work  is  an 
attempt  to  break  the  way  for  an  historical  direction  and  method 
in  economics,  a  reform  similar  to  that  already  made  in  phi- 
lology. 

Smith,  Hildebrand  says,  erred,  like  the  Mercantilists  and 
Physiocrats  before  him,  in  attempting  to  build  a  theory  which 
would  apply  to  all  times  and  places.  Though  Rau  had  denied 
this,  on  the  ground  that  national  lines  are  recognized  by  Smith, 
he  did  not  meet  the  objection :  "  The  cosmopolitan  character  of 
the  Smithian  school  is  not  to  be  sought  in  a  denial  of  the  exist- 
ence of  states,  but  rather  in  the  fact  that  it  applies  its  doctrines 
to  all  states  and  peoples  equally,  considering  the  state  only 
according  to  its  external  boundaries  —  as  a  mere  fragment  of 
the  whole  mass  of  humanity  —  and  ascribes  the  same  validity 
to  its  laws  everywhere."  2 

The  Classicists  forget  that  man,  as  a  social  being,  is  always 
a  child  of  civilization  and  a  product  of  history,  his  wants,  his 
character,  his  relations  to  goods  and  men  ever  changing.  More- 
over, they  are  atomistic,  making  the  individual  the  end  of  society, 
and  holding  that  society  itself  is  based  upon  an  exchange  con- 
tract, private  advantage  being  regarded  as  the  source  and  bond 
of  the  community.  Then,  too,  they  slight  the  moral  problem  of 
the  human  race,  a  course  which  leads  to  materialism.  Even 
if  immaterial  things  are  recognized,  they  are  not  given  the 

1  Vol.  I  appeared  only.  Hildebrand  promised  others.  While  he  lived 
many  years  and  wrote  other  works,  he  never  fulfilled  this  promise.  I 
will  not  go  so  far  as  to  say  this  shows  inability  on  his  part,  as  some  have 
done,  but  simply  observe  that  we  do  not  have  his  complete  thought  and  our 
judgment  must  contain  some  reserve. 

J  p.  28,  note. 


THE   GERMAN   HISTORICAL  SCHOOL  413 

slightest  effect  upon  economic  doctrine.  On  the  other  hand, 
it  is  a  merit  of  the  Socialists  that  they  have  emphasized  ethical 
factors. 

Hildebrand  believed  that  the  present  money  economy  is  only 
transitional  to  a  more  complete  stage  of  development  which  he 
called  credit  economy. 

Karl  Knies  (1821-1898)  was  the  most  thorough  and  logical 
expositor  of  the  historical  method.  His  work,  Die  politische 
Okonomie  wm  Standpunkt  der  geschichtliche  Methode  (Political 
Economy  from  the  Standpoint  of  the  Historical  Method), 
appeared  in  1853,  with  a  second  edition  containing  some  addi- 
tions in  1881-1883.  It  was  dedicated  to  Roscher.  The  title  of 
the  second  edition,  it  is  important  to  observe,  was  changed  to 
read,  "  Political  Economy  from  the  Historical  Standpoint." 

Like  his  fellows,  Knies  attacks  absolutism  in  theory.  No  eco- 
nomic laws  can  be  declared  absolutely  final,  for  they  concern 
points  in  a  "  constantly  unfolding  evolution,"  and  can  do  no 
more  than  reflect  a  progressive  manifestation  of  the  truth. 
"  The  truth  of  all  theories  which  have  their  foundation  in  empirical 
Life  rests  upon  concrete  hypotheses.  Relativity  in  the  validity 
of  their  conclusions  or  judgments  is  a  necessary  result  of  the 
circumstance  that  those  hypotheses  do  not  remain  identical  nor 
occur  constantly  in  all  times,  places,  and  circumstances."  x  No 
complete  parallelism  between  the  past  and  the  present  exists. 
Knies  dwells  upon  the  fact  that  the  concept  of  private  property 
has  been  a  changing  one,  and  that  self-interest  often  conflicts 
with  the  social  welfare.  And  he  calls  attention  to  the  fact  that 
various  ideas  as  to  what  kinds  of  labor  are  productive  have  pre- 
vailed. Valuations  themselves  rest  upon  such  shifting  hypothe- 
ses. He  shows  in  some  detail  the  circumstances  which  have 
given  rise  to  the  various  kinds  of  economic  thought,  developing 
the  idea  of  relativity  between  economy  and  economics.  He 
believes  in  a  certain  relationship  between  the  industrial  stage  and 
the  development  of  the  science. 

The  next  question  is,  what  method  shall  be  followed  in  each 
case  ?  By  method  Knies  means  the  manner  in  which  f unda- 
1  ist  ed.,  p.  286. 


414  ECONOMIC  THOUGHT 

mental  facts  are  gained,  demonstration  is  made  valid,  and  con- 
clusions established.  The  method  applicable  in  any  scientific 
discipline  stands  in  the  closest  relation  to  the  character  of 
the  science;  therefore,  progress  in  the  science  affects  the 
method,  and  vice  versa.  Knies  criticizes  Roscher  for  the  un- 
usual and  unscientific  way  in  which  he  uses  the  term,  "  historical 
method,"  stating  that  Roscher  devotes  his  attention  to  the 
exposition  of  historical  material,  method  meaning  to  him  merely 
a  general  point  of  view.  A  beautiful  and  fruitful  field  is  opened 
alongside  of  political  economy,  but  economic  doctrines  remain 
uncorrected.1  The  chief  problem  remains,  which  is  to  establish 
the  causal  connection  between  ever-changing  phenomena.  When 
the  question  concerns  phenomena,  and  the  laws  of  phenomena, 
in  which  likeness  and  difference  appear,  Knies  says  that  we 
cannot  expect  to  establish  identities,  but  only  analogies :  "  Only 
laws  of  analogy  can  be  won,  not  laws  of  absolutely  equal  causa- 
tion." 2  We  are  concerned  with  clarifying  the  regularly  occur- 
ring analogies  in  economic  phenomena.  In  this  connection 
Roscher  is  again  criticized  for  believing  that  a  comparison 
of  historical  conditions  which  are  merely  similar,  not  identical, 
will  lead  to  the  establishment  of  laws  of  cause  and  effect. 

Knies  shows  a  usual  tendency  of  the  German  Historical  School 
by  differentiating  natural  and  social  phenomena  and  by  laying 
strong  emphasis  upon  the  modern  importance  of  social  institu- 
tions in  connection  with  the  distribution  problem. 

The  foregoing  economists  had  no  idea  of  a  revolution  in  eco- 
nomics, and  were  by  no  means  averse  to  theory  and  deduction, 
as  the  character  of  their  work  shows.  As  much  has  already  been 
indicated  concerning  Roscher ;  and  Knies  wrote  acute  theoretical 
works  on  money  and  credit,  telegraphs,  railway  transportation, 
and  statistics.  In  these  books  there  is  no  one-sided  application 
of  historical-descriptive  methods.  Rather  one  wonders  if,  after 
all,  there  is  much  difference  between  the  methods  of  the  members 
of  the  Historical  School  and  those  of  the  men  they  criticize ;  and 
no  little  misunderstanding  has  arisen  on  this  very  point. 

*p.  32.  *p.  346. 


THE   GERMAN  HISTORICAL   SCHOOL  415 

Knies,  it  will  be  remembered,  changed  the  title  of  his  work 
to  read  "  from  the  historical  standpoint  "  instead  of  "  from  the 
standpoint  of  the  historical  method."  This  he  did  to  disarm 
just  such  criticism  as  still  follows  the  school,  and  to  show  that  he 
advocated  no  exclusive,  one-sided  method.  In  the  new  edition 
he  wrote :  "  Taken  in  the  true  methodological  sense,  therefore, 
the  designation,  '  historical  method  of  Political  Economy,' 
would  be  unreservedly  permissible  only  if  historical  investiga- 
tion were  to  be  recognized  as  the  sole  task  of  the  science.  Though 
we  may  strongly  desire  to  refer  to  history  and  stand  upon  it  in  a 
well-considered  way,  yet  we  must  never  on  that  account  allow  to 
pass  unrecognized  the  difference  between  economic  history  and 
political  economy,  nor  that  between  the  special  tasks  of  the  his- 
torian and  of  the  economist."  x 

As  a  matter  of  fact,  the  older  group  of  the  German  Historical 
School  stood  first  for  a  criticism  and  attack  upon  the  narrow, 
error-breeding  abstractions  of  the  Classical  School ;  and  secondly, 
and  positively,  for  a  theory  of  evolution  and  for  a  spirit  of  free  and 
full  investigation.2  Roscher  believed  that  by  the  study  of  his- 
tory we  can  find  a  "  firm  island  of  scientific  truth  which  may  be 
accepted  in  the  same  manner  as  the  adherents  of  different  sys- 
tems of  medicine  all  admit  the  teaching  of  mathematical  physics." 
He  believed  that  there  are  general  principles  or  laws,  only  they 
are  to  be  applied  to  particular  cases  with  the  aid  of  statistics  of 
local  conditions.  Knies  denied,  not  that  any  laws  exist,  but  that 
there  are  laws  like  those  of  the  external  universe,  e.g.  physics 
and  astronomy.  This  group  will  be  remembered  as  standing  for 

1  Introduction,  p.  vii. 

2  The  spirit  of  the  group  appears  in  the  following  quotation.     Speaking 
of  unrealism  Knies  said:   "The  difference  is  that  the  idealists  demand  con- 
ditions which  we,  according  to  the  known  and  knowable  fundamentals  of 
the  real  and  personal  conditions  in  economic  life,  must  designate  as  impos- 
sible ;   and  that,  in  conflict  with  the  content  of  life,  they  wish  to  make  their 
absolutely  complete  conditions  stationary,  while  we  ...  proceed  from  and 
upon  the  ground  of  positive  results  and  with  means  the  reality  of  whose 
existence  is  confirmed  by  experience :   we  can  point  to  goals  which  we  view 
like  the  forms  of  the  present  which  are  already  attained  as  points  in  a  con- 
stantly unfolding  evolution."     (Pol.  Oek.,  ad  ed.,  pp.  42  f.) 


41 6  ECONOMIC  THOUGHT 

a  new  spirit  and  a  fresh  viewpoint.  It  cannot  be  maintained 
that  their  effect  was  merely  negative,  for  in  America  and  England 
and  Italy  and  France  the  stimulus  of  their  thought  was  a  virtual 
emancipation,  and  produced  profound  results. 

The  Younger  or  More  Positive  Group.  —  In  the  course  of 
a  few  years,  another  group  of  thinkers  appeared,  however,  and 
determined  to  apply  the  historical  method,  as  they  conceived 
it,  in  a  thoroughgoing  way  to  concrete  studies.  Chief  of  these 
was  Gustav  Schmoller,  at  the  present  time  one  of  Germany's 
leading  economists.  In  1895  Schmoller  wrote :  "  The  older 
historical  political  economy  has  repeatedly  desired  to  turn  too 
quickly  to  account  the  lessons  of  universal  history ;  we  are  now 
aware  that  laborious  inquiries  into  the  details  of  economic 
history  can  alone  supply  the  right  basis  for  the  study  of  history 
in  its  economic  and  socio-political  aspect,  and  for  the  satis- 
factory empirical  establishment  of  national  economic  theory."  l 
In  these  words  the  difference  between  the  two  groups  is 
suggested,  and  also,  perhaps,  a  certain  degree  of  impatience  with 
the  older  group  for  not  following  the  inductive  method  to  such 
lengths  as  the  members  of  the  younger  group  in  their  various 
ways  desired. 

To  get  the  setting  for  Schmoller's  work  it  is  necessary  to  turn 
aside  for  a  moment  to  note  a  new  development  in  German  eco- 
nomic thought. 

Beginning  about  1863,  Germany  was  powerfully  shaken  by  a 
social  agitation  which  brought  out  the  younger  group  and  gave 
the  Historical  School  its  great  prominence.  In  1872  the  now 
famous  Verein  jur  Sozial  Politik  was  founded.1  This  society  was 
based  upon  the  recognition  of  a  social  problem,  and  stood  for 
participation  in  political  activity  for  social  reform.  It  gave  rise 
to  much  controversy,  and  brought  new  life  and  purpose  to  the 
historical  economists.2  At  this  time,  however,  they  became  con- 
fused with  these  advocates  of  social  reform  —  sometimes  called 

1  Handworterbuch  der  Staalswissenschaften,  article  on  "  Volkswirthschaft," 

§9- 

1  Cf.  Schmoller,  Ueber  einege  Grundfragen  des  Rechls  und  der  Volkswirth- 
schaft,  1875.  See  also  below,  p.  484. 


THE  GERMAN  HISTORICAL  SCHOOL  417 

rx>t 

"  socialists  of  the  chair."  The  movement  was  thus  a  broad  one, 
embracing  most  of  those  in  revolt  against  the  Classical  School. 
In  it  were  those  who  advocated  the  inductive  method,  those  who 
emphasized  ethical  factors,  and  the  adherents  of  realism.  From 
among  these  different  phases  of  the  movement,  however  closely 
associated  they  may  be,  the  idea  of  the  historical  method,  as  such, 
must  be  kept  distinct. 

Schmoller,  who  was  born  in  1838,  and  is  now  professor  at  the 
University  of  Berlin,  was  active  in  the  Verein.  He  sees  in  eco- 
nomic history  and  statistics  the  means  for  establishing  a  methodi- 
cally complete  empiricism.  By  this  means  alone  can  the  founda- 
tion for  a  concrete  theory  of  political  economy  be  derived.  The 
deductive  method  is  not  entirely  excluded  by  Schmoller,  —  though 
at  first  he  gave  it  a  very  small  place,  —  but  is  rejected  only  in  so 
far  as  it  is  connected  with  abstraction.  As  his  thought  has  ma- 
tured, Schmoller  has  come  to  hold  that  the  proper  method  is  a 
combination  of  induction  from  historical  and  statistical  observa- 
tion with  deduction  from  the  known  properties  of  human  nature. 
Natural  environment,  ethnology,  and  psychology  are  all  appealed 
to;  and  in  his  last  and  most  important  work,  Grundriss  der 
Allgemeinen  Volkswirthschaftslehre  (1901-1904),  these  factors 
play  an  even  larger  part  than  purely  historical  observation.  All 
these  things  are  the  factors  which  determine  the  industrial  situa- 
tion at  any  given  tune.  Psychology,  for  instance,  must  be  in- 
troduced in  order  to  explain  motives ;  while  the  facts  of  climate 
and  geological  structure  place  limitations.  Certainly  Schmoller's 
later  writings  show  slight  evidence  of  Hegelianism,  his  idea  of 
evolution  being  more  nearly  like  Darwin's. 

Meanwhile  Bucher  in  his  Entstehung  der  Volkswirtschaft 
(1893)  has  taken  a  pointof  view  similar  toBagehot's  in  England,1 
holding  that  while  the  historical  method  leads  to  a  theory  of  the 
laws  of  economic  evolution,  the  deductive  methods  of  the  Classi- 
cal School  are  valid  for  developing  the  laws  of  a  modern 
economy.  Like  Bagehot  he  would  stress  the  modernness  of 
economics,  saying  it  is  a  thing  of  the  present  complex  money- 
and-division-of-labor  economy.  Here  abstraction  and  deduc- 
tion may  be  necessary. 

2  E  l  See  above,  p.  399. 


4i8  ECONOMIC  THOUGHT 

Schaffle  (1831-1904)  may  also  be  mentioned  as  an  important 
recent  economist  who  had  affinities  with  the  school.  A 
notorious  characteristic  of  his  is  an  overextension  of  the  analogy 
between  the  body  politic  and  a  physical  organism.1  He  stands 
for  a  large  amount  of  government  intervention,  and  is  rather 
sympathetic  toward  Socialism.2  Nor  among  the  later  adherents 
of  the  school  should  Brentano  and  Held  be  forgotten ;  while 
Conrad,  Miaskowski,  Nasse,  Schanz,  and  Schonberg  are  among 
those  who  combine  the  historical  method  with  a  considerable 
use  of  deduction.  Schmoller  and  Ashley  in  England,  however, 
are  the  clearest  representatives  of  the  younger  group;  the 
others  are  mentioned  not  as  forming  a  compact  or  closely  re- 
lated group,  but  as  displaying  similar  tendencies  in  method. 

At  the  present  time  the  notable  tendencies  of  the  historical 
school  have  been  summed  up  by  a  prominent  English  historical 
economist  of  the  younger  group  in  a  way  similar  to  the  following : 3 

1.  But  small  space  is  given  to  the  general  principles  or  theory 
(the  Grundlegung),  the  importance  of  the  historical  study  which 
usually  follows  being  emphasized. 

2.  Relatively  slight  attention  is  given  to  the  theory  of  value, 
especially  to  its  subjective  aspects. 

3.  Individualism  and  the  principle  of  self-interest  are  greatly 
limited  by  the  introduction  of  general  anthropological  and  his- 
torico-philosophical  considerations.     Under  the  last  head  would 
be  included  their  ideas  concerning  the  relativity  of  theories  and 
institutions,  the  importance  of  ethics,  social  institutions,  etc. 

The  general  tendency  is  toward  a  partial  return  from  the 
extreme  reaction  of  the  later  historical  movement,  and  toward 
a  better-balanced  method,  and,  in  a  word,  toward  a  recognition 
of  the  fact  that  each  method  has  its  place.  This  change  is 

1  Bau  und  Leben  des  sozialen  Kdrpers,  1875-1878,  4  vob.  See  Econ.  Jr., 
xiv,  138,  for  convenient  biographical  and  bibliographical  note. 

1  Die  Quintessenz  des  Sozialismus,  1875.  Schaffle  grew  more  critical  of 
socialism,  and  is  not  to  be  thought  of  as  having  been  a  socialist  himself. 

1  See  Ashley's  article  on  "  Historical  School "  in  Palgrave's  Dictionary 
of  Political  Economy.  Professor  Ashley  has  been  one  of  the  most  extreme 
members  of  the  historical  school. 


THE   GERMAN  HISTORICAL  SCHOOL  419 

seen  in  Schmoller's  thought  and  is  expressed  in  Biicher's  posi- 
tion. 

Summary  and  Critical  Estimate.  —  From  the  standpoint  of 
pure  theory,  the  largely  negative  character  of  the  earlier  group  of 
the  German  Historical  School,  and  the  weakness  of  the  method 
advocated  by  the  later  group,  are  evidenced  by  the  fact  that  after 
two  decades  or  more  the  founders  of  the  school  had  accomplished 
directly  little  beyond  the  preliminaries  of  the  introduction  of  sys- 
tematic reforms ;  and,  indeed,  aside  from  their  valuable  studies 
in  industrial  history,  the  work  of'  the  later  and  —  for  a  time, 
at  least  —  more  radical  group  was  polemical  and  speculative. 
Directly,  it  led  to  results  which  were  largely  negative.  Indirectly, 
however,  as  has  already  been  emphasized,  the  thought  of  the 
school  has  been  one  of  the  great  liberating  and  stimulating 
forces  of  the  century,  bringing  positive  results  in  the  economic 
theory  of  all  the  advanced  nations. 

The  reasons  for  this  result  are  not  far  to  seek :  strictly  inter- 
preted, the  method  itself  has  inherent  weakness ;  it  is,  in  fact, 
itself  one-sided.  The  adoption  of  the  exclusive  use  of  the  his- 
torical method  as  urged  by  the  more  radical  group  would  devital- 
ize the  science  by  depriving  generalizations  of  their  validity. 
As  Hasbach  and  others  have  pointed  out,1  a  purely  inductive 
method  —  one  according  to  which  deductions  are  made  only 
from  premises  derived  from  observation  —  will  not  suffice  for  a 
science  of  exchange  among  men.  Suppose  that  we  make  a  long 
series  of  observations  concerning  a  phenomenon,  and  as  a  result 
formulate  a  rule ;  suppose  further,  that  we  verify  this  rule ;  is 
there  not  still  the  question,  what  is  the  cause  ?  The  historical 
law  must  ever  be  an  empirical  one  based  on  an  ever  incomplete 
experience.2 

It  is  the  recognition  of  this  fact  that  accounts  for  the  general 
tendency  to  deny  the  validity  of  economic  laws  which  character- 
izes the  school.  Even  Ingram  criticizes  them  on  this  score,  show- 

1  See  article  by  Lexis  in  Die  Entwickelung  d.  deutschen  Volkswirthschafts- 
lehre,  I,  i,  38  (Leipzig,  1908). 

2  Menger  in  Untersuchungen  uber  die  Methode  der  Sozialwissenschaften, 
1883,  made  a  most  acute  criticism  along  this  line. 


420  ECONOMIC  THOUGHT 

ing  that  there  may  be  laws  in  change  and  development,  and  "  that 
there  exist  between  the  several  social  elements  such  relations  as 
make  the  change  of  one  element  involve  or  determine  the  change 
of  another."1 

In  more  positive  criticism,  the  Historical  School — at  least  that 
of  Schmoller  and  Ashley  —  has  sometimes  overlooked  the  ex- 
istence of  the  power  to  judge  of  causes  from  a  knowledge  of  the 
motives  of  men  and  the  action  of  environment.  There  are 
certain  psychical  qualities,  certain  physical  laws,  and  perhaps 
certain  tendencies  in  social  organization,  which  may  be  taken 
as  fundamental.  These  are  like  the  axioms  of  geometry.  By 
referring  to  them,  economic  may  become  more  than  a  branch 
of  historical  learning,  for  thus  one  may  determine  the  causes  or 
sources  of  the  observed  regularities,  and  so  allow  economics  to 
partake  of  a  scientific  character. 

In  fine,  both  inductive  and  deductive  methods  are  needed.2 
The  words  of  an  eminent  adherent  of  the  latter  method  state  the 
truth  with  admirable  moderation  :  this  method  "  recognizes  the 
utility  —  for  technical  reasons  —  of  tracing  causal  connections, 
not  only  from  special  to  general,  but  also,  for  the  sake  of  experi- 
ment, from  general  to  special.  It  thereby  often  discovers  links 
in  the  chain  of  causes  which  were,  of  course,  present  in  the  com- 
plex, empirical  facts,  but  which  were  there  so  deeply  inwrapt  that 
they  would  hardly,  if  ever,  have  been  discovered  by  a  purely 
inductive  method."  3 

The  service  of  the  Historical  School  has  been  to  counteract 
an  undoubtedly  overabstract  tendency.  In  applying  the  prin- 
ciple of  least  sacrifice  some  economists  had  forgotten  that  what 
one  people  or  time  considers  a  gain,  another  may  look  upon  with 
indifference  or  regard  as  a  loss.  So  it  is  also  with  the  "  at  any 
given  stage  of  the  industrial  arts"  qualification  of  the  "law"  of 
diminishing  returns.  The  school  has  broadened  the  conception 

1  History  of  Political  Economy,  p.  205.    This  the  older  historical  group, 
though  differing  as  to  the  nature  of  the  relations,  would  not  deny. 

2  See  above,  pp.  9  f. 

3  Bohm-Bawerk,  "  Method  in  Political  Economy,"  Ann.  Amer.  Acad.,  I, 
263.     (Writer's  italics.) 


THE  GERMAN  HISTORICAL  SCHOOL  421 

of  human  motives  by  emphasizing  the  interaction  of  non -economic 
with  economic  motives.  It  has  clearly  shown  the  fallacy  of  ex- 
treme individualism  and  laisser  faire.  Finally,  the  followers  of 
the  Historical  School  are  to  be  thanked  for  valuable  studies  in 
economic  history,  —  studies  from  which  data  have  been  obtained 
for  verifying  and  correcting  the  theory  of  the  Classicists. 


3.   THE  LOGIC 

THE  following  chapters  deal  with  some  developments  in  the 
history  of  economic  thought  which  concern  the  logic  of  particular 
points  made  in  the  economic  theory  of  Smith  and  his  followers. 
The  writers  to  be  discussed  are  notable  not  so  much  for  their 
emphasis  of  a  different  underlying  system  of  philosophy  and  ethics 
or  for  the  adoption  of  new  methods,  as  for  their  direct  criticism 
of  the  economic  doctrines  of  the  Classical  School. 

It  is  difficult  to  classify  these  thinkers  and  to  select  the  most 
representative  and  important.  Their  criticisms  vary  in  depth  and 
essentiality  and  viewpoint.  Now  it  is  the  rent  doctrine,  now 
free  trade ;  now  the  theory  of  wages,  and  again  that  of  value. 
From  one  point  of  view,  they  might  be  grouped  accordingly  as 
they  criticize  from  an  ethical  or  non-ethical  standpoint.  Or  the 
subjective  element  might  be  made  the  basis  for  classification. 
But  a  simpler  course  has  been  taken  in  merely  discussing  a  few  of 
the  more  notable  and  typical  critics  and  theories. 

Not  a  few  of  the  important  criticisms  of  the  class  now  to  be 
discussed  have  been  mentioned  as  incidental  to  the  thought  of 
those  whose  opposition  proceeded  from  a  philosophical  or  meth- 
odological viewpoint.  Lauderdale  and  Rae,  for  illustration, 
criticized  Adam  Smith's  discussion  of  division  of  labor  and  its 
advantages :  and  Sismondi,  Miiller,  and  others,  pointed  out  the 
evils  which  flowed  from  such  division.  Then  Sismondi  began  a 
notable  series  of  criticisms  concerning  income  and  consumption. 
Friedrich  List  attacked  the  labor  theory  of  value,  —  as  did  Bas- 
tiat  and  Carey, — and  proposed  to  amend  the  classical  doctrine 
of  capital  by  including  immaterial  wealth,  a  proposition  in  which 
Say  and  others  had  preceded  him.  Senior  was  a  notable 
critic  of  the  Ricardian  theory  of  value,  and  censured  the  econo- 
mists for  lack  of  precision  in  defining  their  field  and  terms. 
Jones,  Thiinen,  Carey,  and  Rodbertus,  in  their  several  ways,  sub- 
jected the  Ricardian  theory  of  rent  to  adverse  criticism;  the 
various  members  of  what  might  be  called  the  concrete-historical 
group  in  England  denied  the  validity  of  the  Ricardian  doctrine 

422 


THE   GERMAN  HISTORICAL  SCHOOL  423 

concerning  the  relation  between  wages  and  profits;  and  the 
German  Historical  School,  along  with  others,  in  broadening  the 
treatment  of  economic  concepts  and  motives,  led  up  to  further 
criticism.  In  fact,  almost  a  volume  might  be  written  describing 
and  analyzing  the  bearing  of  the  historical  method  upon  eco- 
nomic theory,  largely  by  way  of  modifying  the  premises.  This 
school,  too,  together  with  such  predecessors  as  Sismondiand  Miil- 
ler,  called  attention  to  the  element  of  friction  and  delay  in  the 
working  of  the  economic  "  laws  "  of  the  Classicists.  The  Mal- 
thusian  principle  of  population,  implied  in  Smith's  thought  and 
accepted  by  Ricardo  and  Mill,  is  perhaps  the  most  criticized 
theory  which  has  become  part  of  economics.  On  the  one  hand, 
the  optimists  assailed  it ;  numerous  non-optimistic  critics  found 
this  or  that  particular  fault  with  it,  on  the  other.  All  this 
leaves  unmentioned,  too,  the  criticism  involved  in  such  isolated 
points  as  Senior's  abstinence  theory  of  interest,  Lassalle's  idea 
of  conjuncture,  and  the  like. 


CHAPTER  XXVI 

LAUDERDALE    AND    HERMANN:    EARLY    CRITICISM    OF 
THE  THEORY  OF  CAPITAL,  PROFITS,  AND  VALUE 

THE  theories  of  Adam  Smith  and  Ricardo  did  not  clearly  set 
forth  the  nature  and  function  of  capital  as  an  independent  factor 
of  production,  and  accordingly  contained  no  clear-cut  and  dis- 
tinct analysis  of  "  profits."  They  held  to  an  objective  cost  theory 
of  value  in  which  labor,  though  not  the  sole  element,  was  over- 
emphasized. Naturally,  too,  consumption  received  scant  atten- 
tion. Two  groups  of  criticism,  then,  are  suggested :  on  the  one 
hand  the  theory  of  capital  and  income  needed  development ;  on 
the  other,  there  was  need  for  a  critical  examination  of  value 
theory  which  should  bring  the  subjective  factors  into  due  promi- 
nence. Criticisms  along  these  lines  were  essayed  by  Lauderdale, 
who  has  already  been  mentioned  in  another  connection,  and  the 
German  economist  and  statistician,  Hermann.  Naturally,  cer- 
tain correlaries  of  the  theories  attacked  were  also  open  to 
objections,  some  of  which  are  set  forth  in  this  chapter. 

Lauderdale's  Criticism  of  the  Theory  of  Capital  and 
Profits  and  his  Doctrines  of  Consumption  and  Value.1  — 

Capital  and  Profits.  —  Lauderdale  at  once  takes  Smith  to  task 
for  his  treatment  of  capital,  his  point  being  that  that  factor  had 
not  been  given  due  importance  as  a  distinct  element  in  produc- 
tion. Of  his  own  work  he  says :  "  Land,  Labor,  and  Capital 
are  separately  treated  of  as  the  sources  of  wealth; — an  opinion 
which,  though  it  has  been  announced  by  some,  and  hinted  at  by 
others,  does  not  seem  to  have  made  on  any  author  so  strong  an 
impression  as  to  be  uniformly  adhered  to  in  the  course  of  his 

1  See  also  above,  pp.  295-297. 
424 


THE  THEORY  OF  CAPITAL,  PROFITS,  AND  VALUE       425 

reasonings."  l  Capital,  he  argues,  is  productive  in  itself,  its 
services  being  twofold,  namely,  to  economize  labor  in  producing 
the  results  already  obtainable  and  to  make  the  production  of 
new  results  possible.  Accordingly,  the  profit  on  capital  arises 
either  from  its  supplanting  a  portion  of  labor  which  would  other- 
wise be  performed  by  the  hand  of  man,  or  from  its  performing  a 
portion  of  labor  which  is  beyond  the  reach  of  the  personal  exer- 
tion of  man.2 

Now  this  conclusion  is  most  important ;  for  the  notion  that 
capital  operates  merely  by  putting  labor  in  motion  and  adding  to 
its  powers  implies  that  industry  and  the  employment  of  labor  are 
limited  by  capital.  The  true  analysis,  however,  "  suggests  the 
inference,  that  a  country  cannot  be  benefited  by  the  possession  of 
a  greater  portion  of  capital  than  can  be  employed  in  performing 
and  supplanting  labor,  in  the  production  and  formation  of  those 
things  for  which  there  exists  a  demand.3  And  he  goes  on  to  argue 
against  parsimony  as  creating  a  more  than  requisite  quantity  of 
capital.  This  is  not  only  a  radically  different  conception  of  capital, 
its  function  and  income,  from  that  found  hi  Smith's  thought ;  but 
also  its  bearing  upon  the  wages-fund  doctrine  which  soon  gained 
such  prominence,  is  apparent.  With  Lauderdale's  theory  that 
doctrine  would  have  been  impossible. 

Value.  —  In  accord  with  Lauderdale's  general  emphasis  of 
productivity  and  demand,  his  theory  of  value  shows  some  devel- 
opment toward  a  proper  correlation  of  utility  and  cost.  Value, 
he  says,  is  the  necessary  characteristic  of  individual  riches. 
The  essentials  to  its  existence  are:  usefulness  and  pleasure  to 
man,  together  with  a  certain  degree  of  scarcity.  The  following 
illustrative  passage  makes  his  idea  clear :  — 

"Water,  it  has  been  observed,  is  one  of  the  things  most  useful  to 
man,  yet  it  seldom  possesses  any  value;  and  the  reason  of  this  is 
evident :  it  rarely  occurs  that  to  its  quality  of  utility  is  added  the  cir- 

1  Inquiry  into  the  Nature  and  Origin  of  Public  Wealth  (1804),  p.  10. 

!  Ibid.,  pp.  161,  203. 

3  Ibid.,  p.  204.  Note  the  conception  of  an  absolutely  predetermined 
demand  and  of  the  possibility  of  general  overproduction  which  is  im- 
plied. Cf.  above,  pp.  297,  307. 


426  ECONOMIC  THOUGHT 

cumstance  of  existing  in  scarcity ;  but  if  in  the  course  of  a  siege,  or  a 
sea-voyage,  it  becomes  scarce,  it  instantly  acquires  value;  and  its 
value  is  subject  to  the  same  rule  of  variation  as  that  of  other  com- 
modities." l 

Lauderdale  criticizes  Petty,  Harris,  and  Smith  for  seeking 
an  absolute  standard  of  value.  Moreover,  he  quotes  from  the 
Wealth  of  Nations  to  prove  Smith's  inconsistency  in  making 
labor  the  measure  of  value,  showing  that  it  is  stated  or  implied  at 
various  points  in  that  work  that  labor  differs  in  value  at  different 
times  and  at  different  places.2  Though  Smith's  use  of  the  word 
"  price  "  instead  of  "  value  "  at  points  saves  him,  yet  his  not  infre- 
quent confusion  of  value  in  use  with  value  in  exchange  lets 
Lauderdale's  shaft  hit. 

Consumption.  —  Lauderdale  was  a  pioneer  in  the  discussion 
of  the  economic  significance  of  consumption,  pointing  out  the 
relation  of  the  subject  to  value,  and  dwelling  upon  the  effects 
of  varying  degrees  of  elasticity  in  demand.3  To  understand  riches 
(individual  wealth)  and  their  variation,  he  says,  we  must  study  the 
interrelations  between  demand  and  supply,  and  all  the  indirect 
effects  of  changes  in  value  of  one  good  upon  another.  As  the 
tastes  of  individuals  differ,  so  men  will  differ  in  the  extent  to  which 
they  will  go  in  renouncing  a  commodity  when  its  supply  is  dimin- 
ished ;  while,  in  turn,  the  prices  of  different  commodities  will  vary 
according  to  the  degree  in  which  they  seem  necessary.  Changes 
in  demand  are  discussed  in  a  similar  fashion,  something  of  the 
importance  of  necessity,  habit,  and  taste  being  indicated.  Then 
Lauderdale  examines  the  effects  of  changes  in  supply  and  demand 
upon  the  order  of  consumption,  using  meat,  wine,  and  mustard  to 
illustrate  different  elasticities  in  demand.  These  commodities 
would  be  affected  very  differently :  the  change  referred  to  "would 
have  very  different  effects  in  altering  the  proportions  betwixt 
the  quantity  and  the  demand  of  each  of  these  articles,  so  it  must 
alter,  in  a  very  different  ratio,  the  value  of  a  given  quantity  of 
each."  Some  undesirable  results  of  an  unequal  distribution  of 
wealth  are  also  mentioned. 

1  Inquiry  into  the  Nature  and  Origin  of  Public  Wealth  (1804),  pp.  15-16. 

2  Ibid.,  p.  30.  3  See  pp.  66,  85  f.,  and  elsewhere. 


THE  THEORY  OF  CAPITAL,  PROFITS,  AND  VALUE      427 

The  Theories  of  Hermann  and  Other  German  Economists 
chiefly  concerning  Capital  and  Undertakers'  Gains.  —  From 
among  the  numerous  German  economists  of  the  early  nine- 
teenth century,  Thiinen  and  Hermann  stand  out  clearly  as 
the  two  most  acute  and  original  theorists.  Of  the  two  thinkers, 
Thiinen  was  undoubtedly  the  more  original,  but  Hermann's 
work  was  based  upon  a  far  wider  reading,1  and,  being  in  closer 
touch  with  the  current  of  economic  thought,  appears  to  have 
exerted  a  greater  influence  upon  his  contemporaries.  This  rela- 
tive result  was  doubtless  due  in  part  to  the  clear,  concise  style  in 
which  Hermann  wrote,  and,  perhaps,  to  the  absence  of  mathe- 
matical formulae. 

In  some  respects,  Hermann  was  a  follower  of  Adam  Smith, 
and  he  generally  begins  his  discussions  with  a  statement  of 
Smith's  views  on  the  point  involved;  but  his  philosophy  and 
theories  of  value  and  distribution  are  so  at  variance  with  those 
of  the  Wealth  of  Nations  that  he  must  be  classed  as  a  critic,  while, 
his  criticism  being  non-ethical  and  directed  against  Smith's 
logic  on  fundamental  points,  he  hardly  falls  among  those  who 
opposed  the  philosophical  and  ethical  system. 

Friedrich  Benedikt  Wilhelm  von  Hermann  (1795-1868)  pub- 
lished his  chief  work,  Staatswirthschaftliche  Untersuchungen 
(Investigations  in  Political  Economy),  in  1 832.2  In  his  preface  he 
sounds  a  note  of  criticism  of  existing  economics,  and  presents  a 
most  interesting  statement  of  the  weak  points  in  the  science.  In 
general,  he  warns  his  readers  against  the  notion  that  it  is  a  com- 
plete and  perfect  science.  It  is  too  closely  related  to  life,  with 
its  continual  change,  for  that.  In  fact,  he  states  that  economists 
had  arbitrarily  limited  their  field  by  excluding  certain  objects.3 

1  The  following  are  some  of  the  writers  to  whom  Hermann  refers :  Aris- 
totle, Hegel,  Physiocrats,  Steuart,  Smith,  Malthus,  Lauderdale,  Sismondi, 
Ricardo,  M'Culloch,  Jakob,  Hufeland,  Sartorius,  Nebenius,  Miiller,  Storch, 
Lotz,  Rau,  Von  Thiinen,  Read,  James  Mill.    The  careful  study  of  and 
influence  by  James  Steuart  and  Lauderdale  are  especially  interesting  to  the 
Engish  reader. 

2  Revised  and  enlarged  edition  in  1870.     The  following  references  in  the 
text  are  to  the  pages  of  the  first  edition. 

3  Cf.  below,  p.  430. 


428  ECONOMIC  THOUGHT 

Again,  in  accord  with  a  common  German  idea,  he  argues  that  to 
conclude  that  individual  interest  always  leads  to  public  advantage 
goes  too  far. 

The  more  particular  shortcomings,  as  Hermann  sees  them,  are 
the  following.  The  lines  of  demarcation  between  the  several 
classes  of  society  were  not  clearly  drawn,  and  the  faulty  dis- 
tinction between  productive  and  non-productive  occupations 
is  especially  pointed  out  as  an  illustration  of  this  weakness. 
The  theory  of  price  seemed  to  him  to  be  full  of  defects:  the 
factors  which  enter  into  the  determination  of  a  particular  price 
had  not  been  sharply  and  completely  indicated ;  neither  had  the 
treatment  of  the  equalization  of  prices,  or  comparative  price, 
been  adequate;  the  distinction  between  exchange  value  and 
price,  he  refers  to  as  "unsatisfactory"  ;  and  he  states  that  there 
was  need  of  an  analysis  of  price  into  its  ultimate  elements, 
so  that  the  cost  of  the  finished  product  would  be  traced  back 
through  its  component  materials  to  wages  and  profits.  Hermann 
also  complains  of  the  narrow  interpretation  of  the  concepts, 
"goods"  and  "  income."  Say  and  Sismondi,  he  says,  had  made 
valuable  suggestions,  but  had  not  carried  them  out  consistently. 
Finally,  consumption  is  mentioned.  Here  numerous  writers  had 
touched  upon  the  abuse  of  the  current  interpretation  of  income ; 
but  they  had  failed  to  develop  their  ideas  or  to  discuss  the  effects 
of  consumption  upon  exchange  and  economics  in  general,  as 
their  varying  treatment  of  such  problems  as  are  presented  by 
absentee  landlordism,  and  parsimony,  manifests. 

Aside  from  its  intrinsic  interests,  as  a  statement  of  the  case 
against  the  political  economy  of  the  day,  the  foregoing  criticism 
is  of  value  in  that  it  outlines  the  contents  of  Hermann's  book 
fairly  well.  Only  the  part  dealing  with  capital  and  profits  has 
been  withheld,  in  order  that  it  may  serve  as  an  introduction  to 
the  discussion  of  Hermann's  theories  concerning  these  subjects. 

Passing  over  his  theory  of  value  for  the  moment,  the  point  to 
be  stressed  in  Hermann's  thought  is  the  theory  of  capital  and  the 
correlated  criticisms  of  the  classical  wages  and  rent  theories. 

Capital.  —  In  his  preface,  Hermann  states  that  previous  dis- 
cussions of  capital  had  been  deficient  in  their  treatment  of  its 


THE  THEORY  OF  CAPITAL,   PROFITS,  AND   VALUE      429 

origin,  nature,  classification,  and  working;  while  the  existing 
theories  of  profits  were  marked  by  shortcomings  in  that  they 
did  not  explain  with  sufficient  accuracy  the  determination  of  that 
share  in  distribution  nor  its  relation  to  wages.  It  may  be  inferred 
from  his  remarks  that  he  thought  that  Ricardo  and  M'Culloch 
had  done  the  best  in  this  regard,  but  that  the  former  was  exces- 
sively abstract  and  the  latter  was  even  more  so.  Smith's  con- 
ception of  capital  was  good,  but  had  not  been  carried  out  consist- 
ently. Most  writers  had  followed  Smith ;  though  Sartorius  and 
Hufeland  had  shown  some  independence,  both  of  these  writers 
distinguishing  between  the  usability  of  a  good  as  capital  and  its 
capacity  to  satisfy  wants  directly.  The  latter  had  made  capital 
embrace  all  goods  which  can  be  used  for  production,  including 
those  which  for  the  moment  await  productive  application  (p.  47). 

But,  to  hasten  to  the  point,  Hermann  tells  us  that  capital  rightly 
means  all  sources  of  income  which  endure  and  have  exchange 
value.  Thus  he  approaches  the  determination  of  the  capital  con- 
cept from  the  standpoint  of  income,  and  income  in  the  sense  of 
utility  (57).  Smith,  he  says,  had  made  income  mean  the  excess 
of  product  over  cost,  or  net  income.  But  income  is  really  the 
use  of  property ;  and  "  production,  in  relation  to  the  yield  of  capi- 
tal for  producers,  is  nothing  but  an  exchange,  through  the  agency 
of  capital,  of  the  direct  usufruct  of  one  property  owner's  goods 
for  a  more  convenient  form  "  (57).  Accordingly,  all  houses  and 
lands  are  to  be  included  in  capital,  so  long  as  they  are  durable 
sources  of  utility  income  and  have  exchange  value. 

Hermann's  classification  of  these  economic  categories  which 
are  related  to  capital  is  as  follows  (59) :  — 

Property :  — 

I.  Immediate  consumption  goods. 

II.  Capital:  - 

1.  Use  capital  (yielding  satisfactions  directly). 

2.  Industrial  capital  (yielding  satisfactions  indirectly). 

A.  Loan  Capital. 

B.  Production  capital. 

(a)  Fixed. 

(b)  Circulating. 


430  ECONOMIC  THOUGHT 

Thus  he  follows  Say  and  Ganilh  in  distinguishing  a  so-called 
"  use  capital,"  or  what  we  would  to-day  rather  call  durable  con- 
sumer's goods,  the  category  being  illustrated  by  such  public  prop- 
erty as  highways,  gardens,  and  buildings.  "  Immaterial  capital " 
is  also  admitted,  consisting  of  trade  secrets,  special  privileges, 
etc.  "  Personal  capital,"  however,  he  rejects  on  the  grounds 
that  it  cannot  be  exchanged,  is  not  a  sufficiently  durable  source 
of  income,  and  that  the  motives  which  lead  to  the  production  and 
education  of  men  are  different  from  those  which  obtain  in  the 
production  of  goods. 

Manifestly  there  is  nothing  in  Hermann's  definition  of  capital 
to  prevent  the  inclusion  of  land,  and  it  is  in  this  point  that  its 
peculiarity  is  most  sharply  apparent.  Land  being  a  good  which 
endures  and  yields  an  income,  is  capital  (48).  To  the  usual 
arguments  in  favor  of  a  distinction  between  the  two  factors, 
Hermann  replies  that  cost  is  not  an  essential  aspect  of  capital, 
the  fundamental  thing  being  a  stock  of  goods  which  furthers 
production ;  and  this  is  just  as  true  of  land  as  any  other  agent. 
Moreover,  to  obtain  the  fruits  of  the  earth,  labor  must  be  ex- 
pended, while  the  operation  of  fixed  capital  depends  upon  the 
forces  of  nature,  so  that  there  appears  to  be  no  fundamental  dif- 
ference on  that  score  (50).  He  believes,  too,  that  the  income  on 
improvements  is  inseparably  bound  up  with  that  from  the  land. 
Against  an  idea  sometimes  expressed  by  Smith  and  others,  Her- 
mann argues  that  land  is  not  a  monopoly,  but  merely  exists  in 
scarcity  like  fixed  capital  (153).  This  early  economist,  then, 
anticipates  a  tendency  which  has  recently  threatened  to  divide 
economists  in  the  United  States. 

It  remains  to  be  observed  that  Hermann  clearly  expressed 
the  idea  of  capital  as  an  abstract  fund  of  wealth;  for  he 
says  that  above  all  one  must  distinguish  the  object  in  which 
a  capital  is  expressed  from  the  capital  itself  (335-336). 
The  latter  goes  on  undiminished,  regardless  of  the  consump- 
tion of  its  products;  machines  are  used  up,  but  not  neces- 
sarily capital,  for  normally  the  value  of  the  product  yields  a 
replacement  fund  (337).  Even  irregular  losses  are  shifted  from 
capital  to  income  by  means  of  insurance.  Here,  again, 


THE  THEORY  OF  CAPITAL,  PROFITS,  AND   VALUE       431 

theories  which  have  gained  some  prominence  of  late  years  are 
anticipated.1 

Rent  and  Wages.  —  Hermann's  notion  of  capital  led  him  into 
conflict  with  several  ideas  held  by  Smith  and  other  members  of 
the  Classical  School.  For  one  thing,  it  was  inconsistent  with 
the  Ricardian  doctrine  of  rent.  Like  others  who  have  taken  the 
same  course,  he  regarded  rent  as  a  percentage  of  the  value  of  the 
land,  which,  once  the  land  is  sold,  obeys  the  laws  of  interest. 
But  perhaps  more  noteworthy  is  his  criticism  of  the  wages-fund 
theory. 

The  downfall  of  the  wages-fund  theory  is  the  subject  of  the 
next  chapter.  It  came  in  the  seventies.  But  more  than  forty 
years  earlier,  this  German  economist,  in  a  clear,  concise  fashion, 
advanced  those  arguments  which  were  to  overthrow  it.  Some 
statements  made  by  Smith,  and  the  doctrine  of  M'Culloch,  and 
Rau,  says  Hermann,  make  capital  the  source  of  wages  and  the 
wage  rate  depend  upon  the  proportion  of  population  to  capi- 
tal. But,  even  granting  that  wages  depend  upon  such  a  pro- 
portion to  circulating  capital,  nothing  follows  as  to  capital  in 
general ;  a  greater  percentage  might  be  invested  in  fixed  capital 
(281).  Again,  the  number  of  those  laborers  who  furnish  per- 
sonal services  and  are  paid  directly  from  income,  is  too  great  to  be 
overlooked.  As  a  matter  of  fact,  wages  are  paid  out  of  the  value 
of  the  product.  The  undertaker  buys  labor,  not  to  consume  it, 
but  to  sell  what  it  produces.  From  the  income  of  the  consumer, 
then,  comes  the  true  compensation  of  the  laborer's  services. 
The  growth  of  the  aggregate  capital,  however,  does  have  an  in- 
direct influence  in  that  it  causes  a  demand  for  more  products. 
;  Hermann  resents  the  idea  that  the  capitalist-undertaker,  or 
enterpriser,  nourishes  the  labor  class.  Rather,  he  simply  uses 
labor  to  procure  a  more  advantageous  sale  of  part  of  his  capital. 
Labor  and  capital  mutually  facilitate  the  transformation  of  their 
separate  services  into  forms  more  suitable  to  each,  and  stand  on 
equal  terms  as  to  economic  function.  In  fact  it  was  a  fundamen- 
tal error  of  Smith's  that  he  at  points  considered  capital  merely  as 
the  maintenance  of  laborers.  Hermann  argues  that  this  is  false 

1  Cf.  below,  p.  523. 


432  ECONOMIC  THOUGHT 

as  far  as  fixed  capital  is  concerned ;  and  so  much  of  circulating 
capital  as  is  expended  upon  material  buys  not  merely  labor,  but 
uses  or  utility  (Nutzungen). 

Undertakers'  Gains.  —  After  his  theory  of  capital  and  the 
criticisms  of  rent  and  wages  doctrines  which  flowed  from  it,  the 
next  great  point  in  Hermann's  theory  is  his  treatment  of  under- 
takers' gains,  that  is,  the  income  received  by  the  entrepreneur  as 
such. 

As  this  point  is  found  an  interesting  illustration  of  the  close 
relation  between  industrial  environment  and  economic  thought. 
In  England,  the  existence  of  large  commercial  and  industrial 
organizations,  and  especially  joint-stock  concerns,  had  familiar- 
ized Adam  Smith  and  his  followers  with  the  idea  of  profits  as  a 
return  upon  capital  considered  as  a  distinct  factor  of  production. 
Profits  to  these  writers  generally  meant  the  revenue  of  capital 
(interest)  plus  a  half  concealed  something  for  management, 
though  Senior's  ideas  differed  somewhat  from  the  common 
notion.  But  in  Germany,  industrial  conditions  were  not  so 
developed.  Industry  was  generally  carried  on  with  small-scale 
units,  and  the  handicraftsman  who  used  his  own  capital  and 
managed  his  own  establishment  was  the  prevalent  manufacturer. 
Agriculture,  too,  was  largely  in  the  hands  of  peasant  proprietors. 
Thus  the  function  of  the  business  undertaker  —  as  the  Germans 
called  the  entrepreneur  or  enterpriser  —  was  relatively  more 
distinct  than  in  England,  while  there  was  less  income  upon  in- 
vested capital,  —  capital  dissociated  from  management  by  its 
owner.  Incomes  consisted  more  largely  of  satisfactions  or  uses 
derived  directly  from  products.  Thus  it  would  have  been  natu- 
ral for  German  thinkers  to  emphasize  the  function  and  income 
of  the  undertaker,  and  that  is  what  they  did. 

But  meanwhile  the  English  doctrines  with  their  emphasis  of 
capital  had  penetrated  German  thought,  so  that  interest  could 
not  be  slighted.  The  result  was  a  rather  well-rounded  theory 
of  profits,  which,  in  its  addition  of  a  clear-cut  idea  of  the  under- 
taker's gain  to  that  of  interest  on  capital,  amounted  to  a  con- 
tribution to  economic  theory.  Indeed,  in  these  early  German 
discussions  over  the  functions  and  income  of  undertakers  may 


THE  THEORY  OF  CAPITAL,  PROFITS,  AND  VALUE      433 

be  found  many  of  the  ideas  that  are  now  common  in  the  debates 
concerning  the  nature  of  profits.  It  will  be  observed  that  the 
idea,  common  among  French  theorists,  that  profits  are  the  wages 
of  management  of  the  entrepreneur,  would,  in  so  far  as  it  in- 
fluenced German  thought,1  produce  a  result  similar  to  that  caused 
by  this  environmental  condition. 

Huf eland  was  one  of  the  earliest  writers  to  show  the  German 
tendency 2  toward  the  separation  of  "  profits  "  into  interest  and 
undertakers'  gains,  and  the  analysis  of  the  business  undertaker's 
functions.  He  made  undertakers'  gains  consist  partly  of  com- 
pensation for  risk,  and  partly  of  a  rent  for  the  undertaker's 
talents  and  capabilities.  And  Rau  (iSaoJ^emphasized  the  same 
point,  regarding  undertakers'  gains  as  a  peculiar  income  spring- 
ing from  the  inner  relation  between  capital  and  labor,  in  which 
the  shares  of  both  these  sources  cannot  be  separated. 

Hermann  made  the  subject  clearer.  Approaching  the  prob- 
lem from  the  viewpoint  of  income,  he  reasoned  (204)  that  the 
business  undertaker's  proper  income  is  a  reward  for  these  serv- 
ices :  (i)  combining  the  factors  of  production,  (2)  evolving  plans, 
(3)  furnishing  rare  capacities  and  talents  of  supervision,  (4)  guar- 
anteeing a  fixed  rate  of  interest  while  his  own  gam  depended 
upon  price  fluctuations.  And  all  these  services,  he  added,  vary 
with  the  amount  of  capital  involved.  The  undertaker's  gain, 
then,  is  the  necessary  reward  for  these  services,  cares,  and  risks. 
On  the  one  hand,  it  is  to  be  distinguished  from  the  wages  of 
labor,  the  compensation  for  exertion  of  a  small-scale  undertaker 
at  some  trade ;  on  the  other  hand,  the  fourth  service  is  not  to  be 
confused  with  a  compensation  for  risk.  Such  a  compensation  is 
not  income  at  all :  it  is  capital,  and  must  be  saved  against  losses. 
The  amount  of  the  undertaker's  gam  is  determined  by  demand 
and  supply  as  to  capital  (208).  The  quantity  of  capital  which 
owners  of  capital  do  not  themselves  wish  to  employ  makes  the 
demand  for  the  business  undertaker's  services,  while  the  num- 
ber of  those  who  seek  to  turn  capital  to  productive  employment 
fixes  the  supply.  His  services  and  income,  then,  being  related 

1  Lotz,  Jakob,  Nebenius. 

*  Neue  Grundlegung  der  Staatswirthschqftskunst,  Vol.  I,  1807. 

2F 


434  ECONOMIC  THOUGHT 

to  the  amount  of  the  capital  involved,  if  a  given  gross  profit 
(Gewinri)  is  assumed,  the  undertaker's  gain  varies  with  the 
amount  of  interest,  the  higher  the  interest  the  lower  his  gain, 
and  vice  versa.  He  may  temporarily  increase  his  gains  by  mak- 
ing such  improvements  or  inventions  as  will  lower  costs;  but 
when  others  learn  of  these  improvements  profits  are  lowered  so 
as  just  to  cover  costs  again. 

The  earlier  period  in  the  evolution  of  the  German  theory  of 
undertakers'  gains  may  be  regarded  as  brought  to  a  close  in 
1855  by  Hans  von  Mangoldt  (1824-1868)  with  his  notable  mono- 
graph on  this  subject,  Die  Lehre  vom  Unternehmergewinn  (The 
Doctrine  of  Undertakers'  Gains).  He  reviewed  the  previous 
theories  and  sought  to  prove  the  necessity  of  undertakers'  gains 
on  economic  grounds.  His  own  very  eclectic  theory  made  them 
consist  of  a  premium  for  risk,  wages  of  management,  undertakers' 
interest,  and  undertakers'  "  rent."  The  interest  included  was 
that  arising  from  such  capital  as  from  its  nature  could  not  be 
loaned  or  the  undertaker's  own  capital;  and  the  "rent"  was  a 
premium  on  undertaking  ability.  His  work  shows  a  leaning 
toward  overminute  analysis,  not  uncommon  among  the  German 
theorists. 

Consumption.  —  In  Chapter  VIII,  Hermann  deals  with  the 
consumption  of  goods,  showing  evidences  of  Lauderdale's  in- 
fluence. He  takes  up  the  concept  of  consumption,  order  of  con- 
sumption, consumption  in  relation  to  the  employment  of  goods, 
in  relation  to  the  economy  of  the  consumers,  and  in  relation  to 
political  economy  in  general.  The  effects  of  parsimony,  luxury, 
purchases  abroad,  etc.,  are  dealt  with;  and  several  interesting 
charts  or  diagrams  are  presented  to  show  the  course  of  distribu- 
tion among  landowner,  renter,  laborer,  and  manufacturer, 
perhaps  an  echo  of  the  Physiocratic  analysis. 

Hermann  made  an  acute  criticism  of  the  labor-cost  theory  of 
value,  his  thought  on  this  point  being  in  several  respects  akin  to 
that  of  his  contemporary,  Senior.  Thus,  he  discusses  more  care- 
fully than  his  predecessors  the  particular  factors  in  value  and 
price  determination,  analyzing  demand  and  supply.  Market 
price,  under  conolitions  of  two-sided  competition,  is  determined 


THE  THEORY  OF  CAPITAL,  PROFITS,  AND  VALUE      435 

by  demand  and  supply.  Demand,  however,  depends  upon  three 
main  factors :  the  use  value  of  the  desired  commodity,  the  abil- 
ity to  pay  of  the  one  who  desires  it,  —  which  factors  form  the 
subjective  limits  (Granze)  of  price  for  the  buyer,  —  and  the 
alternative  cost  of  its  production,  that  is,  the  lowest  cost  of  pro- 
ducing or  acquiring  the  commodity  in  some  other  market  (74). 
These  things  set  an  upper  limit  to  prices.  On  the  side  of  supply, 
there  are  the  following  forces :  the  cost  of  the  commodity,  alter- 
native sale  price,  and  the  exchange  value  of  the  commodity  in 
which  price  is  expressed.  Thus  a  lower  limit  is  set.  In  dealing 
with  the  cost  factor,  the  interaction  of  price  changes  and  costs 
are  discussed  (82-88).  Though  considering  that  for  reproduc- 
ible commodities  cost  is  decisive,  he  gives  considerable  weight 
to  utility,  and  makes  an  important  place  for  demand. 

Hermann's  general  criticism  of  the  labor-cost  theory  of  value 
proceeds  from  the  idea  that  labor  is  not  directly  related  to  prod- 
ucts in  whose  production  capital  figures ;  "  but  only  indirectly, 
and  in  so  far  as  the  laborers  can,  by  means  of  an  increase  or  de- 
crease in  the  supply  of  labor,  work  against  the  variation  in  the 
value  of  their  subsistence  with  the  rate  of  profit"  (131).  Any 
good,  to  be  a  just  measure  of  value,  must  vary  in  price  directly 
with  capital  and  labor,  and  to  that  end  must  contain  both  fac- 
tors. Furthermore,  he  makes  the  five  points  which  follow  (133). 
(i)  It  is  not  true  that  goods  which  are  not  freely  producible  form 
a  negligible  quantity.  Among  them  must  be  placed  land,  and 
through  it  most  goods  are  affected.  If  a  machine,  even,  con- 
tains labor,  this  is  not  to  be  thought  of  as  passing  into  the  prod- 
uct ;  only  in  so  far  as  the  machine  is  used  up  is  it  to  be  considered 
as  raw  material ;  on  the  whole,  the  labor  and  capital  uses  united 
in  the  machine  are  withdrawn  from  circulation  and  are  merely 
bases  of  a  usufruct.  (2)  The  second  and  third  points  together 
form  one  argument.  If  labor  cost  determines  value,  and  goods 
containing  equal  labor  costs  exchange  on  equal  terms,  it  must 
follow,  not  merely  that  2  x  labor  buys  twice  as  much  as  x  labor, 
but  also  that  x  labor  always  exchanges  for  x  labor  and  no  more. 
(3)  Assuming  that  the  rate  of  profits  is  everywhere  equal,  however, 
a  product  must  exchange  for  more  labor  than  it  contains. 


436  ECONOMIC  THOUGHT 

That  is,  a  day's  labor  of  a  farm  hand,  if  exchanged  for  a  pair  of 
boots  upon  which  a  day's  labor  had  been  put  by  the  shoemaker, 
tanners,  etc.,  involved  in  its  production,  would  be  securing  not 
only  that  day's  labor,  but  a  capital  use.  "  But  if  n  labor  in 
product  A  exchanges  for  \n  labor  in  product  B,  how  can  n 
labor  in  B  at  the  same  time  buy  £  n  in  A?  "  1  If  it  be  argued 
that  materials  and  subsistence  are  necessary  to  make  labor 
effective  and  that  therefore  past  labor  is  used,  it  is  thereby 
conceded  that  there  is  an  element  in  production  beyond  labor, 
namely,  the  use  of  capital ;  and  if  the  product  has  an  exchange 
value  in  excess  of  the  labor  cost,  its  existence  is  explained  by  the 
fact  that  this  capital  use  has  not  only  value  in  use,  but  also  ex- 
change value.  (4)  If  one  overlooks  or  abstracts  the  capital-use 
element  and  regards  it  as  equal  in  each  product,  labor  may  be 
thought  of  as  determining;  but,  in  fact,  these  uses  are  hardly 
alike  in  any  two  products.  (5)  In  truth,  Ricardo's  rule,  as  ex- 
pressed by  M'Culloch,  merely  says  A  =  A  and  does  not  explain 
the  essence  of  exchange  value. 

Conclusion. — There  is  no  need  for  a  detailed  criticism  of  the 
views  of  Lauderdale  and  Hermann.  The  former  was  in  error 
in  positing  a  limited  demand  based  upon  an  assumed  body  of 
"  needs  "  ;  and  his  notion  of  the  function  of  capital,  while  con- 
taining a  correction  of  Smith's  ideas,  was  crude.  Hermann's 
chief  mistake  appears  to  be  an  undue  minimization  of  the  dif- 
ferences that  exist  among  productive  agents.  First,  he  too 
nearly  overlooks  the  significance  of  the  question  of  directness 
of  yield,  which  results  in  the  inclusion  of  durable  consumers' 
goods  in  his  classification  of  capital  ("  use  capital  ").  But 
chiefly  this  minimization  is  seen  in  his  denial  of  the  significance 
of  cost  differences  between  the  factors  which  are  ordinarily 
called  land  and  capital.  He  virtually  omits  any  recognition  of 
the  importance  of  the  fact  that  the  supply  of  land  in  general  is 
limited,  and  that  this  is  especially  true  for  any  one  of  the 
different  grades  of  land.  His  treatment  of  undertakers'  gains, 
too,  is  open  to  the  objection  of  including  payments  for  diverse 
1  Cf.  the  argument  on  Ricardo's  theory  of  profits,  above,  p.  230. 


THE  THEORY  OF   CAPITAL,  PROFITS,  AND  VALUE       437 

functions,1  and  he  is  sometimes  classed  as  one  of  those  who 
attempted  to  combine  the  English  and  French  theories. 

The  more  modern  tendency  would  be  to  classify  a  part  of  the 
rewards  given  to  the  undertaker  by  Hermann  as  wages  and  part 
as  "  pure  profits." 

The  merits  of  the  two  writers  have  perhaps  been  sufficiently 
indicated. 

The  similarity  between  their  views  upon  important  points  and 
the  probable  influence  of  the  earlier  author  upon  the  other  do 
not  seem  to  have  been  recognized.  Resemblances  have  been 
noted  in  the  independent  place  given  to  capital,  the  subjective 
element  in  value,  and  the  treatment  of  consumption.  Both  also 
point  to  the  distinction  between  public  and  private  wealth,  Her- 
mann undoubtedly  following  Lauderdale  to  some  extent. 

1  Mangoldt's  theory  is  open  to  a  similar  criticism. 


CHAPTER    XXVII 
THE    DOWNFALL    OF    THE    WAGES-FUND    THEORY 

DURING  the  space  of  a  generation,  roughly  covered  by  the  life- 
time of  John  Stuart  Mill,  that  method  of  explaining  wages  rates 
known  as  the  wages-fund  theory  played  an  important  part  in 
the  history  of  economic  thought.  Some  account  of  this  theory 
has  already  been  given.1  Though  a  faint  trace  of  it  may  be  found 
in  Turgot's  writing,  it  is  an  English  product,  dating  from  the  time 
when  capital  and  a  capitalist  class  began  to  be  of  prime  impor- 
tance in  industry.  Following  the  Industrial  Revolution  there 
came  a  certain  new  dependence  of  labor  upon  capital  —  as  ad- 
vances of  subsistence  and  direct  aid  to  production  —  which  the 
economists  soon  exaggerated.  Passages  from  Smith,  Ricardo, 
Mai  thus,2  and  M'Culloch  3  might  be  cited,  showing  a  suggestion 
of  the  idea  that  wages  depend  on  a  wages  fund  of  circulating 
capital,  the  two  writers  last  named  being  clear  and  definite  in 
their  expression  of  it.  Senior,  as  already  seen,  puts  it  quite 
clearly,  and  is  commonly  named  as  the  father  of  the  theory. 
But  it  was  James  Mill  who  stated  the  theory  in  a  hard  and  fast 
manner,  and  his  son  John  fitted  a  somewhat  modified  form  of 
the  doctrine  into  his  restatement  of  the  classical  political 
economy. 

Passing  over  some  early  criticism  in  Germany  4  which  had  no 
influence  in  England,  that  interesting  series  of  assaults  by  Eng- 
lish writers  which  sapped  and  overthrew  this  dogma  may  be 
taken  up  at  once. 

Perhaps  the  first  came  from  Richard  Jones,  who  wrote  in  1831. 
At  this  time  the  theory  had  not  gained  such  prominence  as  it  later 

1  See  above,  pp.  228,  236,  267,  356.  8  Political  Economy,  p.  379. 

1  Political  Economy  (1836),  p.  234.  *  Above,  pp.  273,  381,  431. 

438 


THE  DOWNFALL  OF  THE  WAGES-FUND   THEORY       439 

attained,  and  Jones  was  chiefly  concerned  with  rent ;  therefore 
his  treatment  was  too  brief  to  give  him  the  honor  of  a  definitive 
attack.  Jones'  words  were  as  follows :  "  We  should  take  a 
very  false  View  of  the  causes  which  regulate  the  amount  of  their 
[the  laborers']  earnings,  if  we  merely  calculated  the  quantity  of 
capital  in  existence  at  any  given  time,  and  then  attempted  to 
compute  their  share  of  it  by  a  survey  of  their  numbers."  [  For, 
as  laborers  "  produce  their  own  wages,  all  the  circumstances 
which  affect  either  their  powers  of  production,  or  their  share  of 
the  produce,  must  be  taken  into  the  estimate."  These  ideas 
were  not  expanded,  and  Jones'  judgment  appears  to  have  had 
small  effect. 

A  similar  lack  of  effectiveness,  so  far  as  recognized  and 
avowed,  at  least,  attended  the  much  more  conclusive  work  of 
Francis  D.  Longe.  Longe  was  an  Oxford  man  and  a  lawyer, 
being  admitted  to  the  bar  in  1858.  Through  a  connection  with 
the  Children's  Employment  Commission  he  became  acquainted 
with  the  labor  problem ;  in  1860  he  published  a  treatise  on  the 
law  of  strikes ;  and  this  was  followed,  in  1866,  by  his  pamphlet, 
A  Refutation  of  the  Wages-fund  Theory  of  Modern  Political  Econ- 
omy. 

Longe  quotes  passages  from  Mill  and  his  follower,  Fawcett,  to 
show  that  they  believe  (i)  in  a  definite  fund  destined  for  pur- 
chasing labor ;  (2)  that  the  laborers  form  a  group  within  which 
competition  can  distribute  wages ;  and  (3)  that  the  factors 
controlling  this  distribution  are  demand  and  supply.  These 
things  Longe  denies.  Even  as  an  abstract  principle,  he  holds, 
the  theory  is  false.  The  fallacy  lies  in  treating  the  fund  taken 
to  represent  demand  for  labor  "  as  a  sum  which  would  all  be 
spent  in  labor,  notwithstanding  the  purchase  of  a  part  of  the 
supply  with  a  smaller  portion  of  it  than  would  represent  the 
proper  price  of  the  part  bought,  as  determined  by  the  pro- 
portion between  the  whole  supply  and  the  money-measure  of 
the  original  demand."  Even  if  the  circulating  capital  of  a  coun- 
try were  a  certain  per  cent  of  its  wealth,  there  is  nothing  to  in- 
sure that  the  laborers  would  get  all.  And  he  shows  that  Mill  falls 
1  Essay  on  the  Distribution  of  Wealth,  Chap.  VI. 


440  ECONOMIC  THOUGHT 

into  some  confusion  by  using  "  demand,"  now  as  money  demand, 
now  as  the  quantity  demanded.  As  to  the  existence  of  any  such 
fund,  Longe  himself  maintains  that  the  mere  psychical  process 
of  "  destining  "  a  thing  cannot  bring  it  to  pass ;  it  is  demand  in 
the  sense  of  quantity  of  labor  demanded  that  enters  into  the 
determination  of  the  wage  rate. 

The  whole  fallacy,  he  states,  lies  in  a  confusion  of  two  funds : 
one  consisting  of  the  goods  available  for  maintaining  laborers 
during  the  productive  process;  the  other,  of  the  amount  of 
wealth  available  for  purchasing  the  product.1  The  former  may 
come  from  the  laborers'  own  resources  or  be  borrowed,  as  well 
as  be  advanced  by  the  employer  directly ;  the  latter  might  come 
from  consumers,  from  the  goods  produced,  or  from  the  employer. 
It  is  the  latter  "  fund  "  alone  that  is  significant. 

Mr.  Longe  sent  copies  of  his  Refutation  to  Mill  and  Fawcett, 
but  it  provoked  no  reply. 

Two  years  after  the  appearance  of  Longe 's  pamphlet,  another 
concise  refutation  of  the  doctrine  under  consideration  was  pub- 
lished, being  found  in  the  North  British  Review  for  March,  i868.2 
The  article  is  unsigned.  Its  writer  begins  by  stating  that  the  fal- 
lacy of  the  wages-fund  theory  lies  in  its  premise  that  everything 
which  decreases  profits  thereby  decreases  the  means  of  paying 
wages.  But  he  calls  attention  to  the  fact  that  manufacturers 
do  not  all  receive  a  bare  minimum  profit,  the  inference  being 
that  wages  could  be  increased  by  drawing  upon  surplus  profits ; 
and  he  goes  on  to  argue  that  diminished  profits  may  lead  to  an 
increase  in  saving  and  capital.  For  one  thing,  the  fund  for  pay- 
ing wages  is  mostly  drawn  from  the  price  of  the  product,  and 
is  reinvested  without  conscious  effort.  "  A  manufacturer  will 
generally  work  his  mill  or  factory  to  the  utmost  so  long  as  he 
does  obtain  a  profit ;  he  does  not  voluntarily  set  aside  a  certain 
sum  for  wages,  diminishing  and  increasing  that  sum  according 
to  profits,  but  he  employs  as  many  men  as  he  can,  and  pays  them 
what  he  must."  In  the  second  place,  there  is  another  class  of 
savings,  coming  from  investors,  and  this  increases  when  the  in- 

1  Ibid.,  p.  47-  2  pP-  S  ff- 


THE  DOWNFALL  OF  THE  WAGES-FUND  THEORY       441 

terest  rate  decreases.  In  short,  the  wages  fund  may  increase 
either  through  higher  prices  or  through  lower  profits. 

This  unknown  writer  sums  up  his  criticism  in  the  following 
words.  "  Our  argument  is  briefly  this :  —  Wages,  like  the  price 
of  all  other  limited  commodities,  depend  on  a  conflict  between 
the  desire  for  the  commodity,  and  the  reluctance  to  sell  it.  Any- 
thing affecting  either  feeling  as  to  labour  will  alter  wages.  The 
total  desire,  measured  by  the  total  sum  paid  for  wages,  may  in- 
crease in  consequence  of  large  profits  leading  men  to  wish  for  an 
extension  of  trade,  but  it  may  also  increase  owing  to  increased 
reluctance  on  the  part  of  labourers  to  sell,  leading  the  purchasers 
of  labour  and  produce,  one  or  both,  to  pay  more,  lest  they  should 
lose  wholly,  or  in  part,  their  profits,  or  the  enjoyment  of  the  prod- 
uce." The  price  of  labor  is  ascertained  through  competition, 
which  establishes  an  equilibrium ;  but  this  does  not  explain  the 
forces  which  determine. 

Next  Cliffe  Leslie  deserves  mention  as  taking  up  the  cudgels 
against  the  wages-fund  theory.  His  criticism  appeared  in  two 
articles  published  during  1868  in  Fraser's  Magazine,  one  in  May 
and  one  in  July.1  He  held  that  there  were  no  funds  destined  to 
employment  as  wages.  Capital  can  emigrate  and  be  shifted  from 
one  employment  to  another.  Capital  may  be  substituted  for 
labor.  The  unequal  distribution  of  the  aggregate  available  for 
wages,  moreover,  might  make  wages  much  lower  than  if  that 
aggregate  were  equally  shared  by  employers.  Or  through  com- 
bination wages  might  be  forced  down.  But  even  if  there  were 
such  a  fund,  the  question  would  still  remain,  what  determines 
its  amount  ?  2  Finally,  competition  does  not  work  to  distribute 
the  "  fund  "  among  laborers  so  as  to  equalize  wages  and  sacrifices. 

Leslie  was  acquainted  with  Longe's  pamphlet,  and  at  one 
point  refers  to  it  in  order  to  make  a  criticism. 

Meanwhile  Thornton  had  published  some  "  Stray  Chapters 
from  a  Forthcoming  Work  on  Labor  "  in  the  Fortnightly  Review. 

1  Land  Systems  and  Industrial  Economy,  pp.  87,  358  ff.    It  will  be  noted 
that  articles  by  Thornton  preceded  these  in  course  of  time. 

2  In  connection  with  this  criticism  Leslie  mentions  the  article  in  the  North 
British  Review,  March,  1868,  p.  6. 


442  ECONOMIC  THOUGHT 

This  was  in  the  fall  of  1867.  Two  years  later  the  book  itself 
appeared  under  the  title,  On  Labour.  In  Book  II,  Chapter  I, 
which  contains  his  attack,  Thornton  begins  with  a  criticism  of 
the  whole  demand  and  supply  theory  of  value  as  stated  by  the 
classical  economists.  He  then  proceeds  to  argue  his  case  against 
the  wages-fund  doctrine  on  this  basis. 

Fixity  or  definiteness,  he  says,  is  the  essence  of  the  supposed 
wages  fund.  But  such  a  fund  can  have  no  existence  save  as  an 
aggregate  of  individual  funds,  and  such  funds  are  far  from  fixed. 
Every  employer,  it  is  true,  has  a  certain  amount  of  money. 
But  he  may  devote  more  or  less  to  domestic  expenditure,  and 
so  with  buildings,  materials,  and  labor.  In  any  case,  be  is  not 
bound  to  spend  all  he  could  upon  labor.  With  such  reasoning 
Thornton  made  short  work  of  demolishing  the  idea  of  a  defi- 
nite sum  of  money  set  aside  as  a  wages  fund,  —  the  idea  com- 
monly held  at  the  time. 

On  this  particular  matter  Thornton  is  behind  Longe  in  grasp 
and  keenness  of  analysis.  Moreover,  as  was  pointed  out  by  the 
American  economist,  Francis  A.  Walker,  who  will  be  next  dis- 
cussed, the  fact  that  individuals  have  no  definite  funds  does  not 
necessarily  prevent  the  existence  of  a  social  or  statistical  definite- 
ness.  Yet  Thornton's  attack  took  immediate  effect.  In  the 
Fortnightly  Review  for  May,  1869,  Mill  made  his  classic  recanta- 
tion, declaring  that  the  wages-fund  doctrine  was  a  barrier  to  an 
important  province  of  economic  thought,  —  a  "  shadow  which 
will  vanish  if  we  go  boldly  up  to  it." 

It  is  not  improbable  that  Mill  had  been  gradually  weakened 
by  the  attacks  of  Longe  and  Leslie,  and  by  his  sympathy  with 
trade  unions  in  their  efforts  to  raise  wages.  His  belief  had  been 
accepted  from  the  Ricardians,  including  his  father,  and  at  a 
time  when  the  labor  problem  was  less  imminent  and  his  sym- 
pathies less  aroused.  Moreover,  his  ideas  on  demand  and  sup- 
ply were  rather  superficial,  and  were  not  based  upon  a  thorough 
analysis.  Then,  upon  the  appearance  of  his  friend  Thornton's 
book,  he  decided  to  give  up  publicly.  Just  why  the  gates  of 
his  belief  were  opened  with  such  a  rush  is  more  or  less  of  a  mys- 
tery, and  not  a  few  have  surmised  a  lack  of  candor  in  dealing 


THE  DOWNFALL  OF  THE  WAGES-FUND  THEORY        443 

with  Longe.  An  opinion  favorable  to  Mill,  however,  seems 
most  just,  nor  has  any  proof  of  dishonesty  on  Thornton's  part 
been  advanced.1 

Walker's  attack  was  more  constructive  and  suggestive  of  the 
true  relation  between  wages  and  capital ;  though,  like  his  prede- 
cessors in  criticism,  he  directed  his  assault  upon  the  idea  of 
a  wages  fund  in  the  shape  of  money,  not  clearly  distinguishing 
capital  from  product.  "  Given  a  certain  body  of  labor  em- 
ployed," he  asks,  "  what  is  it  that  determines  the  amount  which 
the  employer  can  afford  to  pay  in  wages  ?  Is  it  the  amount  of 
capital  at  his  command,  or  the  value  to  be  realized  from  that 
labor  ?  "  And  his  answer  is,  it  is  production  which  limits  wages, 
and  production  is  in  its  turn  limited  by  consumption.  Wages 
are  ultimately  paid  out  of  the  product  of  industry,  and  in  so 
far  as  paid  before  the  product  is  marketed  capital  merely  ad- 
vances the  amount.  In  new  countries,  in  fact,  wages  are  mainly 
paid  out  of  the  product  of  current  industry. 

Walker  makes  a  second  point  in  regard  to  the  effect  of  the 
number  of  laborers.  The  sum  of  possible  wages  is  far  from  being 
fixed  without  regard  to  the  number  of  laborers.  On  the  contrary, 
their  number  and  efficiency  form  an  important  element,  and  an 
increase  in  labor  supply  may  result  in  a  more  than  proportionate 
increase  in  the  aggregate  of  possible  wages.  It  is  folly  to  postu- 
late "  other  things  being  equal,"  for  this  cannot  be  when  popu- 
lation changes. 

The  final  word  in  this  stage  of  the  discussion,  however,  re- 
mained for  another  American  economist,  Prof.  F.  W.  Taussig. 
In  his  Wages  and  Capital,  an  Examination  oj  the  Wages  Fund 
Doctrine  (1896),  Taussig  presented  a  careful  and  accurate  anal- 
ysis of  the  relation  of  capital  to  wages,  together  with  a  his- 
tory of  the  wages-fund  discussion  from  its  beginning  to  the  close 
of  the  last  century.  His  conclusion  is  that  there  is  an  element 
of  truth  in  the  wages-fund  idea,  and  that  to  the  extent  that  this 
is  so,  Walker's  ideas  are  wrong. 

The  argument,   briefly  put,  runs  thus:    real  wages  being 

1  Cf .  Walker,  "  The  Wage-Fund  Theory,"  North  American  Review,  Vol.  1 20, 
pp.  94  ff. 


444  ECONOMIC  THOUGHT 

properly  the  subject  under  consideration,  it  is  apparent  that, 
in  a  division-of-labor  economy,  laborers  —  and  others  —  are 
supported  chiefly  by  the  product  of  past  labor ;  for  the  reward 
of  present  labor  is  enjoyable  goods,  which,  for  the  most  part, 
exist  only  as  the  result  of  a  long  period  of  production.  In  any 
but  the  shortest  periods,  then,  the  resources  of  a  community 
exist  in  the  form  of  capital  from  which  income  in  the  shape  of 
consumable  commodities  immediately  flows;  while  the  hired 
laborers  of  our  industrial  system,  being  dependent  for  their 
money  income  on  a  bargain  with  capital  owners,  do  draw  their 
wages  from  a  sort  of  wages  fund.  This  does  not  mean,  however, 
an  unalterable  relation  between  real  capital  and  real  wages, 
but  that  wage-earners  get  their  money  wages,  and  thus  their 
share  of  real  income,  from  what  the  capitalist  class,  including 
middlemen  and  bankers,  find  it  profitable  to  turn  over  to  them. 
Moreover,  a  limited  degree  of  elasticity  is  allowed  to  wages  by 
Professor  Taussig's  theory. 

In  a  word,  the  significance  of  roundabout  methods  of  produc- 
tion and  our  dependence  upon  past  production  for  enjoyable 
goods  are  made  clear,  and  Professor  Taussig's  fame  largely  rests 
upon  this  sound  and  generally-accepted  analysis. 

The  whole  wages-fund  episode  in  the  history  of  economic 
theory,  while  it  has  led  to  fruitful  discussion  and  a  clearer  under- 
standing of  the  relation  existing  between  wages  and  capital, 
after  all  owes  its  existence  chiefly  to  a  confusion  of  thought. 
Perhaps  springing  from  the  industrial  organization  at  the  time 
common  in  England,  the  idea  prevailed  among  economists  that 
capital  consists  of  money,  or  consumers'  goods,  at  least,  in  the 
hands  of  employers.  This  was  the  underlying  notion  of  all 
those  who  took  part  in  the  controversy  on  this  point,  even  down 
through  Walker's  day.  A  large  part  of  capital  goods  was  neg- 
lected, and  its  function  in  this  connection  left  unanalyzed ;  while 
capital  was  mixed  up  with  product  or  goods  for  consumption. 
The  forces  of  demand  and  supply,  as  they  operate  in  the  evalua- 
tion of  labor,  were  not  carefully  and  fairly  analyzed. 

As  long  as  this  idea  obtained,  false  notions  concerning  the 
interrelation  of  wages  and  profits  (interest)  could  easily  pre- 


THE  DOWNFALL  OF  THE  WAGES-FUND  THEORY        445 

vail.  Capital  was  thought  of  as  a  "  residual  claimant  "  from 
an  ill-defined  wages-plus-profits  aggregate.  The  downfall  of 
the  wages-fund  theory  meant  a  forward  step  not  only  in  the 
theory  of  wages,  but  also  in  speculation  on  capital  and  interest. 
Undoubtedly,  too,  in  the  long  and  widespread  sway  of  the 
wages-fund  doctrine  is  to  be  seen  the  influence  of  class  bias. 
It  served  to  emphasize  the  prime  importance  of  capital  in  in- 
dustry and  defend  it  from  increased  taxation.  It  also  furnished 
the  capitalist  class  with  a  ready  argument  against  strikes :  the 
wages  fund  being  a  fixed  amount,  what  one  union  gained  would 
necessarily  be  at  the  expense  of  another. 


VI.    ATTEMPTS  AT  RECONSTRUCTION 

THE  two  preceding  chapters  have  concerned  those  criticisms 
of  the  dominant  classical  economics  which  applied  not  so  much 
to  the  philosophical  basis  or  the  method  pursued  as  to  the  cor- 
rectness of  the  reasoning  —  the  logic.  One  further  line  of  criti- 
cism of  this  last  order  remains  for  discussion ;  one  which  has 
been  so  ambitious,  so  sweeping,  and,  withal,  so  successful,  that 
it  is  well  to  set  it  apart  and  call  it  an  attempt  at  reconstruction. 

At  various  points  in  the  preceding  pages,  attention  has  been 
called  to  evidences  that  the  significance  of  wants,  utility,  and 
the  subjective  side  of  value  generally,  did  not  pass  unnoticed. 
All  the  time,  indeed,  though  the  fact  was  not  appreciated,  a 
leading  point  of  difference  in  economic  thought  lay  just  here. 
But  the  dominant  schools  everywhere  were  little  disposed  to 
dwell  upon  subjective  aspects,  and  psychology  was  slow  in  fur- 
nishing the  basis  for  adequate  analysis.  Here,  then,  was  an 
opportunity  for  reaction  and  even  for  a  reconstruction  of 
economic  analysis. 

Shortly  after  the  opening  of  the  second  half  of  the  nine- 
teenth century,  several  factors  combined  to  occasion  this 
reaction.  The  classical  economics  sank  into  some  disrepute 
because  of  the  narrowness  and  dogmatism  which  developed 
in  it:  it  failed  to  adjust  itself  to  times  and  places;  and  one 
reason  for  this  fact  was  its  one-sided  dependence  upon  material 
and  objective  considerations.  This  fact  invited  and  facilitated 
the  reaction.  Again,  socialistic  attacks  with  their  illogical 
appeals  to  the  classical  theory  of  value  stimulated  economic 
thought  to  a  deeper  analysis :  Marx'  theory  needed  recognition 
of  the  part  played  by  utility  for  its  refutation.  Finally,  the 
development  of  psycho-physics  showed  the  way,  —  opened  the 
door  for  progress. 

About  the  middle  of  the  century,  a  physiologist,  E.  H.  Weber 
(1795-1878),  gave  to  the  world  some  investigations  concerning 

446 


ATTEMPTS  AT  RECONSTRUCTION  447 

the  intensity  and  duration  of  sensations  or  mental  facts.1  His 
results  were  elaborated  and  expounded  by  Fechner  in  1860 
(Elemente  der  Psycho-physik) ,  and  have  become  known  to  every 
student  of  psychology  as  Weber's  Law,  or,  sometimes,  Fechner's 
Law.  Observing  that  the  greater  the  intensity  of  the  original 
stimulus  the  greater  must  be  the  increase  in  stimulus  in  order 
to  cause  a  perceptible  difference  in  the  resulting  sensation, 
these  investigators  framed  a  principle  as  follows :  In  order  that 
the  intensity  of  a  sensation  may  increase  in  arithmetical  progres- 
sion, the  stimulus  must  increase  in  geometrical  progression; 
or,  to  put  it  another  way,  within  short  periods,  if  the  stimulus 
be  continued  in  equal  amounts,  the  intensity  of  a  sensation  is 
diminished.  Such  a  principle,  of  course,  necessitates  a  scale  of 
excitation-  or  stimulus-values  with  minima  and  maxima  of 
perceptibility. 

Here,  then,  was  the  basis  and  the  model  for  a  law  of  diminish- 
ing utility.  The  principle  suggests  a  scale  of  utilities,  with  an 
estimation  of  goods  according  to  the  intensity  of  the  gratifica- 
tion-sensation of  the  last  unit  of  consumption-stimulus. 

The  significance  of  the  last  or  marginal  unit  of  stimulus  was 
apparent,  and  naturally  suggested  the  way  to  make  definite  the 
vague  concepts  of  total  utility  which  had  prevailed. 

It  seems  impossible  to  say  just  how  direct  is  the  relation 
between  this  development  in  experimental  psychology  and  the 
analysis  of  Jevons  and  the  Austrian  School ;  but  here,  as  else- 
where, progress  in  one  science  gets  "in  the  air  "  and  soon  influ- 
ences others. 

1  See  Wagner's  Handworterbuch  der  Physiologic,  1842-1843,  vol.  III. 


CHAPTER   XXVHI 

EARLIER    DEVELOPMENTS    IN    THE    MARGINAL    UTILITY 
CONCEPT:    GOSSEN,    JEVONS,    AND    WALRAS 

THE  development  of  the  marginal  analysis  in  value  theory 
is  commonly  associated  with  the  names  of  Jevons  and  of  the 
members  of  the  Austrian  School.  But,  both  in  the  concept  of 
the  margin  and  in  the  emphasis  of  utility  and  demand,  these 
men  were  anticipated.  As  is  usually  the  case,  there  were  fore- 
runners. 

I.  First  Developments.  —  Not  to  dwell  upon  such  faint  sug- 
gestions as  may  be  found  in  the  writings  of  Galiani,  Barbon,  and 
others,  the  French  writer,  Condillac,1  must  be  mentioned.  Con- 
dillac  stated  that  value  depends  upon  wants,  being  less  in  the 
thing  itself  than  in  the  estimate  we  form  of  it,  and  that  it  varies 
according  to  the  intensity  of  wants  and  the  supply  of  goods.2 

Jeremy  Bentham,  famous  in  English  jurisprudence  and  politi- 
cal philosophy,  suggested  the  idea  when  he  wrote :  "  The  greater 
the  quantity  of  the  matter  of  property  a  man  is  already  in  pos- 
session of,  the  less  is  the  quantity  of  happiness  he  receives  by 
the  addition  of  another  quantity  of  the  matter  of  property,  to 
a  given  amount."  3 

1  Le  Commerce  el  le  Gouvernement  consideres  relativement  I'un  d  Vautre, 
Paris,  1776.  See  p.  n  of  ed.  of  1803. 

*  "Now  since  the  value  of  things  is  founded  upon  the  want,  it  is  natural 
that  a  more  keenly  felt  want  gives  to  things  a  greater  value.  .  .  .  The 
value  of  things  increases  with  scarcity  and  decreases  with  abundance.  In 
abundance  it  could  even  decrease  to  nil.  A  superabundant  good,  for  ex- 
ample, will  be  without  value  whenever  one  cannot  make  use  of  it,  since  then 
it  will  be  quite  useless." 

3  Works,  IX,  18  (Edinburgh,  1843). 

448 


EARLIER  DEVELOPMENTS  IN  UTILITY   CONCEPT       449 

Also  noteworthy  in  this  connection  are  the  English  writers 
Craig,  Longfield,  and  Lloyd.  John  Craig  in  1821  developed  the 
significance  of  utility  in  value  determination  in  an  original  way, 
analyzing  the  utility  of  a  good  into  different  strata  which  come 
into  play  as  supply  is  increased.1  But  Longfield  (1833)  had  a 
clearer  expression  of  the  marginal  idea  as  applied  both  to  utility 
and  cost :  to  him  market  price  was  "  measured  by  that  demand, 
which  being  of  the  least  intensity  yet  leads  to  actual  purchases." 
In  the  following  year,  W.  F.  Lloyd  published  a  most  remarkable 
Lecture  on  the  Notion  of  Value.  Value,  he  reasoned,  may  be 
defined  as  the  esteem  in  which  an  object  is  held.  Although 
human  wants  are  varied  and  no  limit  can  be  assigned  to  their 
development,  yet,  for  any  specific  object,  an  increase  hi  supply 
will  bring  satiety  and  value  will  vanish  (p.  10).  Lloyd  says: 
"  In  its  ultimate  sense,  value  undoubtedly  signifies  a  feeling  of 
mind  which  shows  itself  always  at  the  margin  of  separation 
between  satisfied  and  unsatisfied  wants."  3  The  claim  of  this 
Englishman  to  the  distinction  of  first  clearly  explaining  value 
in  terms  of  marginal  utility  seems  strong.4 

The  German,  Thomas,  has  often  been  overlooked  in  this 
connection.  In  his  Theorie  des  Verkehrs  (1841),  however,  he 
very  clearly  states  the  main  ideas  of  the  modern  subjective 
theories  of  value:  Value  depends  on  estimation,  and  for  esti- 

1  Remarks  on  Political  Economy,  p.  4.  "...  if  more  is  now  to  be  disposed 
of,  it  must  be  to  those  who  did  not  reckon  its  utility  equivalent  to  its  former 
cost.  New  purchasers  indeed  will  appear  in  proportion  to  the  reduction  of 
price ;  because  at  every  step  of  the  decline  it  is  brought  down  to  the  estimate 
which  an  additional  number  of  persons  had  formed  of  its  power  of  producing 
gratification,  or,  in  other  words,  to  their  estimate  of  its  value  in  use." 

1  Lectures  on  Political  Economy,  p.  113.  On  Longfield  see  Cannan, 
History  of  Theories  of  Production  and  Distribution,  and  Seligman,  Some 
Neglected  British  Economists. 

3  pp.  1 2- 1 6.     Lloyd  takes  a  now  familiar  illustration  in  the  shape  of  a 
hungry  man  and  successive  ounces  of  bread,  and  clearly  distinguishes  "  ab- 
stract"  (total)   utility  from  "special"  (marginal)  utility.     He  compares 
diminishing  utility  to  the  decreased  pressure  of  a  spiral  spring  as  it  uncoils  ! 

4  Lloyd  appears  to  have  been  "discovered"  in  recent  times  by  Professor 
T.  S.  Adams.    See  his  article  on  "  Index  Numbers  "  in  the  Journal  of  Political 
Economy,  December,  1901,  p.  19. 

2G 


450  ECONOMIC   THOUGHT 

mation  there  must  be  not  only  an  object,  but  a  subject  who 
evaluates.  Value  depends  upon  the  strength  of  desire,  and  price 
upon  a  comparison  of  the  estimations  put  by  the  parties  to  an 
exchange  upon  their  goods.  He  expresses  the  idea  of  a  scale 
with  upper  and  lower  limits  (Grenzeri).1  Thomas,  however, 
seems  not  to  have  thought  it  necessary  to  enter  into  the  minute 
psychological  analysis  characteristic  of  the  modern  marginal- 
utility  thinkers. 

Similar  ideas  were  soon  advanced  quite  independently  by  a 
French  engineer  named  Dupuit.2  He  wrote  that  "  goods  have 
a  utility  not  only  for  each  consumer,  but  also  for  each  want  for 
the  satisfaction  of  which  they  are  employed  "  ;  and  seems  to  have 
clearly  grasped  the  concept  of  final  or  marginal  utility. 

Finally,  Senior  should  also  be  mentioned  as  a  forerunner; 
and  Banfield  and  Jennings,  to  whom  Jevons  himself  expressed 
indebtedness,  should  not  be  forgotten. 

The  first  writer,  however,  who  developed  the  ideas  now  under 
consideration,  and  centered  a  more  or  less  comprehensive  system 
of  economic  theory  in  them,  was  Gossen. 

II.  Gossen. — Hermann  Heinrich  Gossen  (1810-1858)  was 
one  of  those  unfortunate  geniuses  whose  work  falls  upon  deaf 
ears  and  unseeing  eyes.  Yet,  although  his  book  was  all  but  for- 
gotten and  unknown,  so  clear  and  important  was  his  contribu- 
tion to  economic  theory  that  a  few  pages  should  be  devoted  to 
him. 

Gossen's  book,  Die  Entwickelung  der  Gesetze  des  menschlichen 
Verkehrs  (Development  of  the  Laws  of  Exchange  among  Men) 
was  published  in  1854  at  Brunswick.  The  author  states  that 
it  is  the  result  of  twenty  years  of  meditation ;  that  what  Coper- 
nicus had  done  in  founding  the  physical  laws  of  the  universe, 
that  he,  Gossen,  had  done  for  human  society,  —  though  some 
metaphysical  Kepler  or  Newton  might  be  needed  to  fill  in  the 
outline  and  determine  the  precise  application  of  his  forces. 

1  Theorie  des  Verkehrs,  pp.  16,  25,  66. 

2  De  la  mesure  de  I'utilite  des  travaux  publics,  1844;    De  I 'influence  des 
peages  sur  I'utilite  des  votes  de  communication,  1849;   "  UtilitS,"  Jr.  d'Econ., 
July,  1853. 


EARLIER  DEVELOPMENTS  IN  UTILITY   CONCEPT        451 

The  confusion  which  existed  in  economic  doctrine  he  conceived 
to  lie  in  the  absence  of  mathematical  treatment :  to  deal  scien- 
tifically with  complicated  forces  requires  mathematics.  He 
even  suggested  that  while  it  is  not  now  possible  to  measure 
absolute  quantities  of  satisfaction,  comparisons  may  be  made 
by  geometrical  principles,  and  measurements  of  unknown  quan- 
tities arrived  at,  just  as  distances  are  computed  in  astronomy. 
It  may  be  said  that  his  book  is  an  attempt  to  put  economics  on 
an  exact,  mathematical  basis. 

The  philosophy  is  essentially  utilitarian.  But  the  broad 
goal  of  a  greater  sum  total  of  human  happiness  is  constantly 
kept  in  view. 

Gossen  at  once  proceeds  to  develop  a  law  of  decrease  in  amount 
of  satisfaction,  using  the  common  geometrical  figures  with  their 
ordinates,  abscissa,  and  curves.  From  this  law  he  derives  the 
following  principles :  — 

(1)  "  There  is  a  manner  of  enjoying  each  satisfaction,  chiefly 
dependent  upon  the  frequency,  according  to  which  the  sum  of 
the  man's  satisfaction  reaches  a  maximum.     If  this  maximum 
is  reached,  the  sum  of  the  satisfaction  will  be  decreased  by  a 
more  frequent,  as  well  as  by  a  less  frequent,  repetition." 

(2)  "  The  man  who  has  the  choice  of  several  satisfactions,  but 
whose  time  is  not  sufficient  to  procure  all  completely,  in  order 
to  attain  the  maximum  of  satisfaction  must  —  however  the 
absolute  amounts  of  the  satisfactions  may  differ  —  partly  enjoy 
all,  even  before  he  has  completely  enjoyed  the  greatest  one; 
and  this  [must  be]  in  such  proportions  that  at  the  moment  his 
consumption  ceases  the  amount  of  each  satisfaction  is  the  same." 

(3)  The  possibility  of  increasing  the  sum  of  the  satisfactions 
of  life,  even  under  present  conditions,  exists  when  a  new  satisfac- 
tion, be  it  in  itself  never  so  small,  is  discovered,  or  when  one 
already  known  is  extended.1 

According  to  Gossen,  things  have  value  in  proportion  as  they 

yield  satisfactions  or  enjoyments.     On  this  basis  commodities 

may  be  divided  into  three  classes:   first,  those  which   have 

all  the  properties  for  yielding  satisfactions,  that  is,  consumers' 

1  Gesetze  des  menschlichen  Verkehrs,  p.  21. 


452 


ECONOMIC  THOUGHT 


goods,  or  Genussmittel,  as  he  calls  them.  Next  come  "  goods 
of  the  second  class,"  comprising  those  in  which  the  union 
of  all  the  properties  for  complete  enjoyment  is  lacking,  as,  for 
example,  pipes  and  ovens  and  other  complementary  goods. 
Finally,  production  goods  are  distinguished.  These  embrace 
land,  machinery,  etc.,  and  have  an  indirect  value  due  to  their 
ability  to  produce  goods  of  the  other  classes. 

"  With  increase  in  quantity,  the  value  of  each  added  unit 
(Atom)  must  undergo  a  continuous  decrease  until  it  sinks  to 
nil."  *  Thus,  goods  which  yield  only  one  satisfaction  have  their 
consumption  limited  by  time,  or  the  number  of  units  consumed. 
As  to  a  complex  of  goods :  "If  his  powers  are  not  sufficient  to 
produce  all  possible  means  of  satisfaction,  man  must  produce 
each  one  to  such  an  extent  that  the  last  unit  of  each  has  equal 
value  to  him."  2 

But,  meanwhile,  what  of  costs?  Gossen  here  states  that 
different  goods  require  different  degrees  of  exertion  for  their 
production,  "  and  the  value  of  the  things  produced  thereby  will 
naturally  be  diminished  in  the  same  degree  with  the  estimation 
of  the  difficulty,  as  such." 3  He  draws  a  diagram  like  the  accom- 


a 


Gesetze  des  mensMichen  Verkehrs,  p.  31. 


8  Ibid.,  p.  33. 


'Ibid.,  p.  38. 


EARLIER  DEVELOPMENTS  IN  UTILITY  CONCEPT        453 

panying  figure,  and  concludes  that  "  the  value  reaches  a  maxi- 
mum when  the  quantity  ad  is  produced,  i.e.  when  the  produc- 
tion is  carried  on  so  long  that  the  difficulty  and  the  value  are 
equal."1  It  follows  that  in  order  to  obtain  a  maximum  of  satis- 
faction, men  have  to  divide  their  time  and  energy  spent  in  pro- 
curing different  satisfactions,  so  that  the  last  unit  of  any  one 
satisfaction  is  equal  to  the  amount  of  difficulty  or  disutility 
which  would  be  caused  if  that  unit  were  produced  in  the  last 
moment  of  exertion,  i.e.  at  the  margin  of  disutility.2 

Nor  does  Gossen  let  wants  or  desires  go  without  some  analysis 
along  the  line  of  difference  in  elasticity,  etc.  He  distinguishes 
"  needs "  (Bediirfnisse)  from  luxury  or  pleasure  desires,  the 
former  being  those  which  cannot  be  trenched  upon  without 
bringing  economy  in  other  satisfactions;3  and  he  notes  some 
of  the  results  which  flow  from  the  fact  that  men  differ  in  their 
purchasing  power. 

The  conclusion  is  that  this  obscure  German  anticipated 
much  of  recent  development  in  economic  theory.  The  sub- 
jective side  of  value,  wants,  is  emphasized ;  the  marginal  utility 
idea  of  value  determination  is  formulated ;  and  this  is  brought 
into  correlation  with  the  margin  of  disutility.  And  his  classi- 
fication of  goods  into  different  orders  or  classes  is  suggestive 
of  Menger's  thought.  All  this  he  did,  to  say  nothing  concern- 
ing his  development  of  mathematical  methods  of  presentation. 
Perhaps  the  lack  of  elegance  and  clarity  in  exposition  may 
account  for  a  part  of  the  neglect  accorded  him.  The  chief 
general  criticisms  seem  to  be  his  lack  of  system  in  presenta- 
tion, and  a  failure  to  deal  adequately  with  market  price. 

III.  Jevons.  —  Some  seventeen  years  after  the  appearance  of 
Gossen's  book,  yet  quite  independently,  the  English  economist, 
Jevons,  worked  out  similar  ideas,  and  along  similar  lines.  In 
an  introduction  to  a  collection  of  his  essays  another  English 
economist,  and  one  whose  opinion  has  no  small  weight,  says: 
"  But  I  do  not  think  it  too  much  to  say  that  the  future  his- 
torian of  the  science  .  .  .  will  trace  the  main  sources  of  its 
advance  in  the  writings  of  four  men,  each  of  marked  genius  — 
1  P-  39-  *  Gesetze  des  mensMichen  Verkehrs,  p.  45.  *  Ibid.t  pp.  135  ff. 


454  ECONOMIC  THOUGHT 

Petty,  Cantillon,  Ricardo,  and  Jevons ;  and  of  these  four,  the 
name  of  Jevons  .  .  .  will  not,  I  think,  rank  last  in  order  of 
fame."  l  Though  the  words,  "  main  sources,"  make  the  state- 
ment an  exaggeration,  it  has  its  element  of  truth. 

William  Stanley  Jevons  was  born  in  Liverpool,  England,  in 
the  year  1835.  He  was  a  shy  and  thoughtful  man,  much  given 
to  introspection,  and  possessed  of  a  very  inquiring  turn  of 
mind.  He  attended  University  College  School  and  University 
College,  London,  and  in  1854  was  made  assayer  of  the  mint  at 
Sidney  in  Australia.  Returning,  he  became  successively  lec- 
turer and  professor  at  Owens  College,  and  professor  at  Uni- 
versity College  (1876-1880).  His  untimely  death  in  1882  came 
by  drowning,  and  men  have  always  regarded  it  as  a  great  loss 
to  economic  thought. 

Though  he  wrote  several  books  and  numerous  essays,2  his 
Theory  of  Political  Economy,  published  in  1871,  will  be  mainly 
considered  here. 

Jevons'  political  economy,  while  treating  of  the  wealth  of 
nations  with  the  purpose  of  teaching  how  the  poor  can  be 
made  as  few  as  possible  and  all  be  well  paid  for  their  work, 
inquires  how  wealth  may  be  best  consumed.  Consumption  he 
gives  a  distinct  place,  and  puts  it  before  production  and  distri- 
bution,3 in  this  departing  from  the  practice  of  Mill  and  the 
classical  economists  in  general.  Thus  wants,  and  their  satis- 
faction by  utilities,  are  emphasized.  "  The  most  important 
law  in  the  whole  of  political  economy  "  is  the  "  law  of  variety  " 
in  human  wants:  each  separate  want  is  soon  satisfied,  yet 
there  is  no  end  to  wants.  Banfield  is  quoted  with  approval  as 

1  Foxwell,  p.  xliii  of  introduction  to  Jevons'  Investigations  in  Currency 
and  Finance. 

2  The  Coal  Question,  1865. 

Theory  of  Political  Economy,  1871. 

Money  and  Mechanism  of  Exchange,  1875. 

The  State  in  Relation  to  Labor,  1882. 

Methods  of  Social  Reform. 

Investigations  in  Currency  and  Finance.  \  Posthumous. 

Logic.  J 

3  See  Primer  of  Political  Economy, 


EARLIER  DEVELOPMENTS   IN  UTILITY   CONCEPT       455 

saying :  "  The  satisfaction  of  every  lower  want  in  the  scale 
creates  a  desire  of  a  higher  character."  A  "law  of  succession 
of  wants  "  is  also  suggested,  and  is  roughly  illustrated  by  a 
range  of  utilities  shading  from  air  down  through  food,  clothing, 
and  lodging,  to  amusements. 

Jevons  employs  the  word,  "  utility,"  "  to  denote  the  abstract 
quality  whereby  an  object  serves  our  purposes."  He  does  not 
allow  moral  considerations  to  enter;  mere  pleasure  and  pain 
are  the  ultimate  objects  of  the  calculus  of  political  economy. 

He  goes  on  to  point  out  that  utility  is  not  inherent.1  It  is 
relative  to  wants,  and  too  much  of  a  good  brings  disutility. 
Utility  decreases  as  the  quantity  increases.  There  is  thus  a 
difference  between  total  utility  and  degree  of  utility,  the  degree 
of  utility  of  successive  units  decreasing  while  total  utility  in- 
creases. 

"  There  is  a  certain  sense  of  esteem,  of  desirableness,  which 
we  may  have  with  regard  to  a  thing  apart  from  any  distinct 
consciousness  of  the  ratio  in  which  it  would  exchange  for  other 
things.  I  may  suggest  that  this  distinct  feeling  of  value  is 
probably  identical  with  the  final  degree  of  utility.  While 
Adam  Smith's  often  quoted  value  in  use  is  the  total  utility  of  a 
commodity  to  us,  the  value  in  exchange  is  defined  by  the  ter- 
minal utility,  the  remaining  desire  which  we  or  others  have  for 
possessing  more."  2 

This  final  degree  of  utility  is  the  degree  of  utility  of  the  last 
or  the  next  possible  addition  to  a  stock.  It  is  the  now  famous 
term  with  which  Jevons  designated  what  we  ordinarily  call 
marginal  utility.  By  it,  exchange  value  is  determined.  "  The 
ratio  of  exchange  of  any  two  commodities  will  be  the  reciprocal 
of  the  ratio  of  the  final  degrees  of  utility  of  the  quantities  of 
commodity  available  after  the  exchange  is  completed."  In 
fact,  "  The  final  degree  of  utility  is  that  function  upon  which 
the  whole  Theory  of  Economy  will  be  found  to  turn."  3  To 
illustrate,  take  water.  Water  has  no  value,  for  we  have  so 


Theory  of  Political  Economy,  Chap.  III. 

Ibid.,  p.  157.  8  Ibid.,  p.  61. 


456  ECONOMIC  THOUGHT 

much  of  it  that  its  "  final  utility  "  is  o.  But  let  the  supply 
run  short  through  drought,  and  we  begin  to  feel  a  higher  degree 
of  utility,  —  and  value  comes  into  being. 

Like  Gossen,  Jevons  concluded  that  in  consumption  the 
tendency  is  to  equalize  final,  or  marginal,  utilities. 

He  makes  some  further  analyses:  such  as  the  distinction 
between  actual,  prospective,  and  potential  utility;  and  the 
indication  of  three  dimensions  in  utility  —  quantity,  degree, 
and  duration.  The  time  element,  too,  must  be  allowed  for,  as 
an  element  of  uncertainty.1 

1  Jevons'  other  economic  theories. 

One  of  the  notable  services  of  Jevons  was  his  work  as  a  statistician. 
Here  he  showed  marked  ability,  powers  of  analysis  and  imagination  being 
happily  combined.  His  countrymen,  Petty  and  Malthus,  had  made  use  of 
statistics,  but  with  inferior  data  and  less  natural  acuteness.  Jevons  had  that 
peculiar  gift  of  detecting  likenesses  and  differences  —  of  discerning  "move- 
ments"—  in  masses  of  data,  which  is  essential  to  the  statistician.  His 
chief  work  was  in  the  field  of  prices.  Here  he  detected  monthly  movements, 
yearly  movements,  —  in  the  autumn,  —  periodic  movements  due  to  crises, 
and  longer  cycles  resulting  from  changes  in  the  value  of  money.  His  famous 
hypothesis  concerning  the  relation  between  industrial  depressions,  and  the 
periodic  recurrence  of  sun  spots  will  be  familiar  to  most. 

It  is  to  be  regretted  that  so  acute  an  observer  should  have  failed  to  show 
the  deepest  insight  in  dealing  with  the  labor  problem.  Starting  from  the 
premise  that  the  wages  of  workmen  are  "the  value  of  the  goods  produced, 
after  the  necessary  rent  of  land  and  interest  of  capital  have  been  paid  " 
(Primer,  p.  64),  he  concluded  that  strikes  are  folly,  that  to  decrease  hours 
would  result  in  decreased  wages,  and  that  the  objections  of  trade  unions  to 
piece  work  wages  are  absurd,  — "  for  men  must  generally  be  supposed 
capable  of  taking  care  of  their  own  health."  It  is  but  to  be  remarked  that 
a  preponderance  of  the  best  economic  thought  would  not  accept  these  con- 
clusions without  essential  qualifications. 

Though  his  labor  doctrine  smacks  somewhat  of  laisser-faire,  it  is  one  of 
Jevons'  merits  to  have  thrown  light  upon  the  relation  of  state  to  industry. 
In  his  Slate  in  Relation  to  Labour  he  shows  that,  while  the  presumption  is 
perhaps  in  favor  of  individual  freedom,  yet  happiness  must  be  the  ultimate 
test.  Four  cases  are  distinguished  in  which  the  state  may  properly  inter- 
fere: (i)  where  numerous  scattered  operations  require  such  interference 
for  their  best  coordination ;  (2)  when  the  processes  involved  are  of  a  routine 
character ;  (3)  where  the  work  is  under  the  public  eye ;  and  (4)  where  little 
capital  is  involved. 


EARLIER  DEVELOPMENTS  IN  UTILITY  CONCEPT       457 

Quite  naturally  Jevons  attacked  the  labor-cost  theory  of 
value,  or,  for  that  matter,  all  cost  theories.  His  brief  runs 
something  as  follows.  In  the  first  place,  many  valuable  things 
are  not  reproducible  at  any  cost ;  hence  all  such  goods  are  not 
subject  to  a  cost-explained  valuation,  and  a  cost  theory  is  at 
best  partial.  Again,  the  facts  show  that  market  values  gen- 
erally fluctuate  either  above  or  below  cost,  seldom  equaling  it. 
Finally,  there  seems  to  be  little  relation  between  the  quantity 
of  labor  expended  and  the  ultimate  value  of  the  product.  Take 
the  Great  Eastern  steamship,  for  example.  In  spite  of  its  cost, 
what  is  its  value  when  it  is  found  impracticable  to  use  it?  In 
short,  "  labor  once  spent  has  no  influence  on  the  future  value 
of  any  article : 1  "  its  value  on  the  contrary  rises  and  falls 
according  to  the  degree  of  its  utility. 

The  obvious  reply  to  Jevons  is  that  this  degree  of  utility 
depends  partly  upon  supply,  which  in  its  turn  is  subject  to 
limitations  of  cost.  Indeed,  Jevons  himself  goes  on  to  admit 
that  labor  plays  a  part  as  a  determining  circumstance,  reason- 
ing that  labor  affects  supply,  supply  affects  degree  of  utility, 
value  depends  on  degree  of  utility.  This  appears  to  be  vir- 
tually an  admission  that  the  case  for  utility  is  overdrawn. 

Jevons  has  been  further  criticized  in  two  matters  of  impor- 
tance: first,  he  confuses  demand  price  —  what  marginal  pur- 
chasers will  pay  —  with  marginal  utility,  apparently  assum- 
ing that  the  relations  of  the  two  to  value  are  the  same ; 2  and, 
in  the  second  place,  he  is  guilty  at  points  of  substituting  the 
idea  of  social  utility  for  that  of  individual  utility,  leaping  the 
gulf  which  lies  between  the  utility  scales  of  different  men.3 

In  his  theoretical  writings,  Jevons'  method  was  deductive 
and  mathematical,  and,  indeed,  his  conception  of  political 
economy  was  not  dissimilar  to  that  held  by  Senior:  He  believed, 
as  Gossen  had  believed,  that  the  mathematical  method  is 
necessary  to  make  economics  a  science,  a  necessity  inherent  in 
the  measurement  of  pleasures  and  pains. 

1  Theory  of  Pol.  Econ.,  p.  159. 

1  See,  e.g.,  Marshall,  Principles,  Bk.  V,  Chap.  XIV,  note. 

8  See,  e.g.,  ibid.,  pp.  61,  96. 


458  ECONOMIC  THOUGHT 

IV.  Walras.  — Leon  Walras  (1834-1910)  is  another  economist 
who  was  slow  in  gaining  recognition,  and  whose  fame  has  suf- 
fered from  no  fault  of  his  work,  but  from  causes  exterior  to 
it.  His  EUments  d'tconomie  politique  pure  (Elements  of  Pure 
Economics)  was  published  in  1874,  thus  shortly  following  the 
works  of  Jevons  and  Menger.  His  thought  was  undoubtedly 
independent,  however,  and  he  himself  recommends  Jevons' 
book  as  complementary  tojiis  own.  He  constructed  a  more 
complete  system  based  upon  mathematical  analysis  than  did 
Jevons.  The  establishment  of  the  mathematical  school  may 
be  dated  from  Walras,  for,  though  he  was  preceded  by  Cournot, 
his  work  was  much  more  complete  and  systematic. 

To  some  extent,  like  Senior,  Gossen,  and  Jevons,  Walras 
sought  to  make  economics  an  abstract  science,  distinguishing 
pure  economics  from  applied  economics,  on  the  one  hand,  and 
social  economics  on  the  other.  Truth,  he  held,  rather  than  the 
useful  or  the  good,  should  be  the  goal. 

His  great  object  was  to  expound  a  mathematical  theory  of 
exchange,  and  it  is  on  the  second  part  of  his  book,  entitled 
"  mathematical  theory  of  exchange  "  that  interest  is  to  be 
chiefly  centered.  To  achieve  his  end  he  assumes  a  perfect 
competition  such  as  might  obtain  in  the  Bourse,  and,  like  Say^ 
makes  the  entrepreneur  receiving  and  distributing  payments 
for  "  productive  services  "  the  center  of  the  scheme. 

Social  wealth,  as  defined  by  him,  consists  of  all  things,  ma- 
terial and  immaterial,  which  have  utility  and  are  limited  in 
quantity.  The  amount  of  the  value  of  external  things  is  pro- 
portional to  the  amount  of  satisfactions  they  bring  us.  There 
is  no  direct  or  immediate  relation  between  supply  and  price; 
but  such  a  relation  does  exist  between  price  and  demand,  and 
the  demand  curve  depends  upon  this  relation.  The  cause  is 
intensity  of  utility.  And  where  two  commodities  are  concerned 
the  demand  curve  depends  upon  the  relation  between  the  in- 
tensity of  utility  of  the  one  commodity  and  that  of  the  other. 
The  price,  then,  where  neither  of  the  commodities  entering  the 
exchange  is  valueless,  is  such  that  the  intensity  of  the  last 
want  satisfied  is  the  same  for  each. 


EARLIER  DEVELOPMENTS  IN  UTILITY   CONCEPT    459 

For  Jevons'  "  final  degree  of  utility  "  —  and  Gossen's  Werth 
der  letzten  A  tome  —  Walras  uses  the  word  r arete,  which  he 
defines  as  "  the  intensity  of  the  last  want  satisfied."  1  Ex- 
change values  are  proportional  to  raretes.  Two  commodities 
being  given,  for  instance,  if  the  utility  and  the  quantity  of  one 
of  the  two  commodities  in  respect  to  one  or  more  exchangers 
varies,  so  that  the  rarete  varies,  the  value  of  that  commodity  in 
relation  to  the  other,  or  its  price,  will  likewise  vary. 

In  some  respects  Walras'  rarete  appears  to  be  a  truer  con- 
cept than  the  common  notion  of  marginal  utility;  for,  in 
defining  it  as  depending  on  supply  and  utility,2  he  gives  clear 
recognition  to  the  fact  that  supply  limitations  are  included 
and  expressed  in  it.  It  would  not  be  difficult  for  both  cost  and 
utility  theorists  to  approach  some  agreement  with  Walras' 
formula,  according  to  which  utility  and  supply,  working  in 
obedience  to  the  theory  of  maximum  satisfaction,  determine 
the  demand  curve  from  which,  positing  the  law  of  a  single 
price  for  the  market,  comes  price.3 

It  is  to  be  emphasized,  however,  that  rarete  is  subjective. 
Like  his  fellows  of  the  mathematical-utilitarian  school,  Walras' 
theory  stands  opposed  to  objectivity. 

In  contrast  with  Gossen,  Walras  treats  with  notable  clearness 
the  subject  of  market  values ;  and  he  goes  beyond  Jevons 
in  formulating  his  exchange  equations  for  dealings  in  any 
number  of  commodities  rather  than  two  alone.4 

Summary.  —  In  brief  summary  of  the  character  and  im- 
portance of  the  thought  of  the  three  economists  just  discussed, 

1  Economic  politique  pure,  p.  101. 

2  Walras  expresses  indebtedness  to  his  father,  Auguste  Walras,  who  used 
the  word  rarete,  and  denned  it  similarly.     See  De  la  nature  de  la  richesse  et 
de  I'origine  de  la  valeur,  Paris,  1831.     M.  Walras,  senior,  did  not  work  his 
ideas  out  with  breadth  or  clearness,  however. 

3  Ibid.,  p.  99. 

4  For  a  brief  statement  of  Walras'  geometrical  theory  of  the  determina- 
tion   of    prices    in   English,   see   Ann.    Amer.   Acad.   Ill,  45-64  x  (1892). 
Walras'  problem  is  to   represent  the  causation  of   prices  of    commodities 
in    general  —  all    commodities  —  while  recognizing  that  these  prices  are 
interdependent. 


400  ECONOMIC  THOUGHT 

it  may  be  stated  that  all  emphasized  the  subjective  element  in 
value  causation,  that  all  pursued  a  deductive,  mathematical 
method,  and  that  all  arrived  at  a  concept  of  the  margin,  where 
a  final  or  most  intense  want  is  satisfied.  Their  philosophy  is 
utilitarian  and  hedonistic. 

Another  notable  point  of  likeness  is  that  each  of  the  three 
formulates  more  or  less  precisely  some  law  concerning  the 
attainment  of  maximum  satisfaction.  Walras  puts  it  thus : 
"  Taking  two  commodities  on  a  single  market,  the  maximum 
satisfaction  of  wants  or  the  maximum  of  effective  utility  exists 
when  and  where  the  ratio  of  the  intensities  of  the  last  wants 
satisfied,  or  the  ratio  of  the  rareles,  is  equal  to  price."  l 

As  will  appear  from  a  reading  of  the  next  chapter,  the  analysis 
of  subjective  elements  made  by  these  men  lacks  the  refine- 
ment to  which  it  has  been  carried  by  the  Austrian  school. 
And  of  Jevons,  at  least,  it  may  be  said  that  the  theory  of  value 
is  not  strictly  subjective,  but  follows  the  idea  of  value  as  a 
relation  between  commodities. 

1  £con.  pol.  pure,  p.  86. 


CHAPTER  XXIX 

THE    AUSTRIAN    SCHOOL,    AND    ESPECIALLY    THE    DE- 
VELOPMENT OF  SUBJECTIVE  VALUE  THEORIES 

MANY  of  the  earlier  economists  show  a  general  recognition  of 
the  fact  that  utility  is  essential  to  value.  Subjective  factors, 
too,  were  more  or  less  recognized.  These  economists  were,  how- 
ever, inclined  to  take  utility  and  the  demand  based  upon  it  for 
granted.  It  was  a  matter  of  course  with  them.  This  is  espe- 
cially true  of  the  English,  less  true  of  the  Germans,  and  least 
so  in  the  case  of  Say.  As  has  been  seen,  Gossen,  Jevons,  and 
Walras  developed  this  aspect ;  but  Gossen  remained  almost  un- 
known, while  contemporary  with  Jevons  there  arose  a  school  of 
Austrian  economists  who  carried  on  this  line  of  development 
with  a  broader  and  deeper  analysis.  The  "  Austrian  School  " 
so  analyzes  utility  as  to  base  a  comprehensive  theory  of  value 
upon  subjective  elements.  Their  reasoning  they  apply  to  the 
valuation  of  the  factors  of  production,  with  the  result  that 
they  have  developed  a  notable  theory  of  capital  and  interest. 
In  these  points  they  stand  as  critics  of  the  Classical  School. 

The  Austrians  and  their  Value  Theory.  —  Carl  Menger 
laid  the  corner-stone  for  the  Austrians  with  his  Grundsatze 
der  Volkswirtschaftslehre,  iSyi,1  —  the  same  year  in  which 
Jevons'  Theory  appeared.  Menger  felt  that  economic  theory 
had  fallen  into  disrepute  with  many  scholars,  and  he  sought  to 
restore  it  to  its  place  of  honor  by  freeing  it  of  inconsistency 

1  Other  writings :  — 

Untersuchungen  uber  die  Methode  der  Sozialwissenschaft,  1883. 
Die  Irrthumer  des  Historismus,  1884. 
Beitr&ge  zur  W  ahrungsfrage  in  Oesterreich-Ungarn,  1892. 
Die  Ubergang  zur  Goldwiihrung,  1892. 

461 


462  ECONOMIC  THOUGHT 

and  basing  it  upon  more  fundamental  laws  of  causation.  All 
things,  he  says,  are  subject  to  the  law  of  cause  and  effect.  In 
economics  the  human  want  is  the  fundamental  thing.  Things 
which  have  the  capacity  of  being  placed  in  causal  connection 
with  the  satisfaction  of  human  wants  are  utilities.  To  bring 
an  object  into  the  sphere  of  economic  causation  four  conditions 
are  necessary :  (i)  a  human  want,  (2)  such  properties  of  the 
thing  as  make  it  capable  of  being  placed  in  causal  connection 
with  the  satisfaction  of  this  want,  (3)  the  recognition  of  this 
causal  relationship  by  man,  (4)  the  power  to  dispose  of  the 
thing  so  that  it  can  actually  be  applied  to  the  satisfaction  of 
the  want.1  With  such  analysis  Monger  sought  to  arrive  at 
ultimate  causes,  and  to  explain  value  —  which  he  regards  as 
the  heart  of  economic  theory  —  from  the  economic  activity  of 
the  individual,  that  is,  from  his  exchange  contracts.  Although 
some  recognition  is  given  to  the  influence  of  society,  according 
to  Menger,  value  is  an  individual  phenomenon  :  it  is  independ- 
ent of  society  and  law.  He  defines  value  as  "  the  significance 
which  concrete  goods  or  groups  of  goods  gain  for  us  through 
the  fact  that  in  the  satisfaction  of  our  wants  we  are  conscious 
of  a  dependence  upon  the  disposal  of  them."  2  In  opposition 
to  cost  theories,  he  maintains  that  value  rests  on  utility  and 
relative  scarcity. 

Goods  are  divided  into  different  classes,  or  "  orders,"  accord- 
ing to  their  nearness  to  the  consumer.3  Thus  bread  is  in  the 
first  order;  flour  in  the  second;  wheat  in  the  third.  Goods 
of  the  last  description  are  of  the  "  higher  order,"  and  their 
value  is  reflected  back  from  those  of  the  "  lower  order  "  :  wheat 
has  value  because  and  in  so  far  as  men  want  wheat  bread  to 
maintain  life  and  well  being. 

Differences  in  value  are  due  to  the  different  estimations 
which  men  put  upon  the  satisfaction  of  various  wants.  The 
value  of  a  concrete  good,  or  of  a  certain  aggregate,  at  the  dis- 
posal of  an  economic  man  is  equal  to  the  significance  of  the 
least  important  want  satisfactions  yielded. 

1  Grundsatze,  p.  3.  *  Ibid.,  p.  78.  8  Chap.  I,  §  2. 


DEVELOPMENT  OF  SUBJECTIVE  VALUE  THEORIES        463 

Always,  where  there  are  the  bases  for  an  exchange  between 
men  who  are  actuated  by  economic  motives,  certain  limits  are 
set  by  the  quantities  of  exchangeable  goods  which  are  deemed 
equivalents  by  the  parties;  and  these  quantities,  which  in  a 
subjective  sense  are  equivalents,  differ  with  different  individ- 
uals. Within  these  limits  price  is  determined.  If  A  esti- 
mates ico  units  of  grain  at  40  units  of  wine,  and  B  estimates 
80  units  of  grain  at  40  of  wine,  an  exchange  can  take  place, 
the  price  in  grain  lying  somewhere  between  80  and  loo.1 

Over  and  over  again  Menger  repeats  his  statement  that 
value  and  the  measure  of  value  are  subjective  and  dependent 
on  wants.  The  quantity  of  labor  or  capital  expenditure  in- 
volved has  no  direct  or  necessary  connection.2  In  a  primeval 
forest  one  may  chop  wood  till  doomsday  without  making  that 
wood  valuable,  while  a  diamond  picked  up  by  chance  has  great 
value.  Nor  does  the  cost  of  reproduction  solve  the  matter ; 3 
for  there  are  many  goods  which  cannot  be  reproduced,  and 
many  others,  like  out-of-date  clothes,  whose  value  is  less  than 
that  of  the  agents  of  their  production. 

The  next  important  step  in  the  development  of  the  Austrian 
theory  comes  with  the  publication  in  1884  of  the  Ur sprung  und 
Haupt-Gesetze  des  ivirthschaftlichen  Werthes  (Source  and  Principal 
Laws  of  Economic  Value)  by  Wieser.  He  built  upon  Menger, 
applying  his  theory  to  the  phenomena  of  costs,  and  deepening 
the  psychological  analysis. 

Wieser's  complicated  statement  of  what  gives  economic  value 
to  a  good  may  be  translated  thus :  (i)  If  things  are  capable  of 
producing  useful  effects  (aside  from  things  of  indifference,  and 
perhaps  those  which  are  harmful) ;  (2)  if  their  supply  does  not 
equal  the  employment  for  them ;  (3)  if  they  allow  encroach- 
ments by  men  which,  when  economic,  increase  their  usefulness, 
and,  when  uneconomic,  decrease  it ;  (4)  if  all  subjective  suppo- 
sitions which  complete  these  objective  ones  agree;  (5)  and  if, 
then,  the  existence  of  the  good,  its  utility,  and  other  external 
circumstances  are  perceived ;  (6)  if  the  need  for  it  is  not  only 

1  Grundsatze,  p.  176.  *  p.  120.  3  Cf.  above,  pp.  241,  244. 


464  ECONOMIC  THOUGHT 

distinct,  but  also  its  satisfaction  is  desired;  (7)  and  if  the 
purpose  is  formed  to  do  the  economic  acts  which  show  them- 
selves practicable  while  shunning  the  temptation  to  uneconomic 
action,  —  then  will  the  interest  be  transferred  from  the  expected 
economic  uses  to  the  goods,  and  become  associated  with  them, 
i.e.  then  the  goods  receive  economic  value. 

"  The  value  of  a  single  good  out  of  a  store  is  determined  by 
the  interest  in  that  useful  service  which  is  the  least  important 
among  the  most  important  ones  afforded  by  the  store."  For 
Jevons'  "  final  utility  "  he  substitutes  the  term,  Grenznutzen 
(marginal  utility),  which  has  since  become  so  generally  used.1 

In  explaining  the  value  of  the  factors  of  production,  Men- 
ger  had  held  that  the  decisive  thing  is  the  portion  of  the 
return  which  would  be  lost  through  the  loss  of  a  factor.  This 
theory  Wieser  differs  from.  In  his  Natural  Value  (1889)  he 
bases  such  value  upon  the  "  productive  contribution  "  of  the 
factor  —  a  theory  of  imputation.  He  uses  the  principle  of 
complementary  goods,  and  argues  that  "  the  elements  that  are 
bound  up  ...  may  alter,  and  this  fact  makes  it  possible  for  us 
to  distinguish  the  specific  effect  of  each  single  element,"  2  by 
comparing  a  number  of  equations. 

It  would  seem  that  while  Wieser's  scheme  is  useful  in  an 
illustrative  way  and  may  be  used  for  measuring  the  value  of 
production  goods,  it  is  lacking  when  it  comes  to  the  more  funda- 
mental problem  of  determining  their  value.  It  does  not  explain 
causes  or  points  of  fixation. 

Meanwhile,  what  becomes  of  the  idea  that  it  is  the  cost  of 
these  elements  of  production  that  determines  the  value  of  the 
product?  This  Wieser  denies,  though  admitting  that  costs 
have  an  indirect  and  partial  effectiveness.  It  is  his  idea  that 
only  men's  interests,  based  on  utility,  induce  them  to  estimate 
value  at  cost. 

To  use  his  own  words :  — 

"  If  we  ask  why  products  thus  produced  —  neither  under 

1  It  will  be  remembered  that  Thiinen  developed  a  marginal  productivity 
theory,  and  he  used  the  word  Grenze  (margin)  in  connection  with  it.  See 
above,  pp.  286  f.  *  p.  87. 


DEVELOPMENT  OF  SUBJECTIVE  VALUE  THEORIES        465 

nor  over  costs  —  have  value,  and  why  they  have  definite 
amounts  of  value,  we  shall  doubtless  find  that  they  have  them- 
selves alone  to  thank  for  it.  They  create  it  out  of  their  utility, 
taking  into  consideration  the  amounts  produced.  The  circum- 
stance that  costs  of  a  certain  value  have  been  expended  in 
making  them  is  of  no  consequence  as  regards  their  value. 
The  cost  value  does  not  determine  the  use  value ;  the  use  value 
exists  of  itself,  and  sanctions  the  cost  value."  l 

Cost  is  "  sanctioned  "  by  use  value,  —  is,  in  fact,  nothing 
but  a  complicated  form  of  value  in  use. 

But,  as  just  intimated,  costs  are  admitted  to  "  affect " 
values.  Though  not  consistently  followed,  the  idea  appears 
to  be  that  the  anticipation  of  value  (utility?)  gives  costs  them- 
selves a  value.  Then  the  "  value  of  costs  " 2  may  even  deter- 
mine value  of  goods,  either  indirectly,  by  regulating  supply,  or 
directly,  in  individual  cases,  by  communicating  their  own  value 
to  the  good.  "  The  Austrian  School  does  not  in  any  way  destroy 
the  idea  of  cost  or  the  law  of  cost,  it  only  endeavors  to  com- 
bine both  with  the  general  idea  of  value  and  its  general  law, 
and  to  explain  them  in  this  way." ' 

Wieser's  explanation  of  the  existence  of  the  old  notion  con- 
cerning costs  is  ingenious  and  interesting.  Just  as  the  value 
of  a  mineral  spring  depends  on  the  utility  of  its  water,  so  iron, 
coal,  and  labor  derive  value  from  the  utilities  produced.  But 
here,  any  one  unit  of  commodity  reflects  so  small  a  portion  of 
its  total  utility  that  it  seems  that  the  process  is  reversed,  and 
that  the  commodity  derives  its  value  from  the  elements  enter- 
ing into  its  production.  The  individual  capitalist,  for  example, 
if  his  means  of  production  have  other  applications,  finds  them 
evaluated  in  the  general  market,  and  he  tends  to  regard  the 
situation  as  one  in  which  the  value  of  his  wares  must  replace 
his  expenses  of  production.  But,  argues  Wieser,  the  buyers  of 
his  wares  pay  only  according  to  their  estimation  of  their  mar- 
ginal utility.  All  that  cost  does  is  to  limit  the  supply  put 

1  Natural  Value,  Smart's  ed.,  p.  177.  2  Ibid.,  p.  176. 

8  Wieser,  "  The  Theory  of  Value  "  "  (A  Reply  to  Professor  McVane)," 
Ann.  Amer.  Acad.,  II,  620  (1892). 

2H 


466  ECONOMIC  THOUGHT 

upon  the  market.  "  At  the  sale  of  the  products  the  capitalists 
continually  rectify  their  calculations,  and  according  to  their 
gains  or  losses  the  value  of  the  means  of  production  increases 
or  diminishes  in  their  estimation."  Put  more  abstractly,  when 
production  is  bringing  forth  products,  productive  powers  are 
at  the  same  time  limited,  making  economy  necessary.  This 
leads  men  to  conceive  of  production  goods  as  costs,  directing 
their  attentions  to  the  equalization  of  related  productions,  and 
causing  them  to  regard  productive  employment  as  an  outlay 
or  sacrifice.1  "  Costs  are  production  goods  when  these  are 
devoted  to  one  individual  employment,  and,  on  account  of 
their  capacity  of  being  otherwise  employed,  take  the  shape  of 
outlay  expenditure."  1 

In  examining  the  foregoing  idea  of  costs  in  relation  to  value, 
one  is  struck  with  the  juggling  way  in  which  now  all  that  the 
properly  limited  Classical  idea  contains  is  admitted,  now  all  is 
denied.  No  one  denies  that  "  the  idea  of  utility  cannot  possibly 
be  separated  from  the  purposes  of  economy  and  the  conception 
of  wealth  " ; 2  nor  that  men's  interests  based  on  utility  lead 
them  to  estimate  value  at  cost;  nor  that  value  is  created  out 
of  utility,  "  taking  into  consideration  the  amounts  produced." 
But  many  deny  that  the  fact  that  certain  costs  have  been 
expended  is  of  no  consequence  in  value.  The  trouble  seems  to 
lie  in  a  confusion  of  the  ideas  of  source  or  causation  and  deter- 
mination or  fixation.  As  in  the  case  of  the  proverbial  hen- 
z>s.-egg  conundrum,  it  is  of  small  importance  whether  wants 
or  costs  come  first  as  causes  or  sources  of  value.  We  may 
well  grant  that  the  want,  with  its  corresponding  utility,  is  the 
first  of  the  fundamental  forces  to  act.  No  one  will  deny  that 
utility  in  a  sense  "  sanctions  "  cost.  But  when  we  are  taken 
further  and  told  that  costs  have  no  determining  importance, 
the  harmony  is  broken.  In  cases  where  supply  is  limited  by 
costs,  and  so  cost  enters  into  the  determination  of  the  "  margin," 
it  is  as  important  a  factor  as  the  utility  which  decreases  as  the 
supply  is  increased. 

1  Natural  Value,  Smart's  ed.,  pp.  174-175.  *  Ibid.,  p.  196* 


DEVELOPMENT  OF  SUBJECTIVE  VALUE  THEORIES    467 

To  speak  of  "  use  values  "  and  "  value  of  costs  "  is  quite 
misleading.  If  "  use  value  "  means  any  more  than  utility, 
cost  or  rarity  has  entered;  just  as  costs  can  have  no  value 
unless  utility  is  joined  with  them. 

Wieser  goes  on  to  argue  (i)  that  labor  cost  has  "  use  value  " 
only  (a)  when,  if  the  labor  failed,  it  could  not  be  repeated,  and 
so  the  utility  would  be  unique,  or  (b)  when,  in  the  same  case, 
some  other  utility  would  have  to  be  foregone ;  (2)  while,  on  the 
other  hand,  services  are  estimated  according  to  cost  only  when, 
in  the  event  of  failure,  one  would  not  need  to  give  up  the  utility, 
abundance  of  free  labor  power  existing ;  and  he  concludes  that 
this  is  a  contradiction,  —  "  Labour  could  only  be  estimated  at 
once  by  its  utility  and  by  personal  effort,  if  it  were  at  once 
capable  and  incapable  of  repetition."  To  this  objection  it 
may  be  immediately  replied  that  in  a  sense  this  seeming  para- 
dox is  the  very  truth:  the  very  point  in  the  two-sided  theory 
of  value  is  the  fact  that  while  labor  can  be  repeated,  it  can  be 
repeated  on  the  whole  only  with  difficulty,  that  is,  with  cost, 
which  fact  limits  its  repetition.  It  may  be  further  observed 
that  in  the  first  clause  (i)  of  the  argument  just  stated  the  first 
assumption  (a)  involves  a  case  of  absolutely  limited  supply; 
while  the  second  clause  involves  an  abstract  assumption  which 
is  contrary  to  fact. 

Last  of  the  three  pillars  of  the  Austrian  School  comes  Eugen 
von  Bohm-Bawerk.  Bohm-Bawerk  opened  his  important  con- 
tributions in  1884  with  his  well-known  Capital  and  Interest,  a 
critical  history  of  economic  theory ;  following  with  a  monograph, 
Grundzuge  der  Theorie  des  Wirtschaftlichen  Guterwerths  l  (Out- 
lines of  the  Theory  of  Commodity  Value)  (1886),  and  his  master- 
piece, the  Positive  Theory  of  Capital  (1888). 

Bohm-Bawerk  is  notable  not  only  for  independent  thought, 
but  for  clear  exposition  and  illustration,  and  a  "  careful  and 
fruitful  revision  of  many  matters  of  detail."  To  some  extent 
following  the  German  economist  Neumann,  he  further  elabo- 
rates the  division  of  value  into  subjective  and  objective  —  with 
which  he  would  replace  the  old  division  into  use  value  and 
1  Conrad's  Jahrbucher,  f.  Nat.  Oek.,  N.F.,  XIII. 


468  ECONOMIC  THOUGHT 

exchange  value,  —  and  one  of  his  distinct  merits  lies  in  his 
treatment  of  objective  value  or  purchasing  power. 

Subjective  value  is  denned  as  the  significance  which  a  good 
acquires  as  the  recognized  condition  of  a  use  for  well-being 
which  would  have  to  be  foregone  without  the  good.  The 
amount  of  value  depends  upon  the  amount  of  gain  in  well-being 
which  the  good  brings,  or  what  want  would  remain  unsatisfied 
without  it :  "  The  value  of  a  good  is  determined  according  to 
the  importance  of  the  concrete  want  or  increment  of  want,  which 
is  the  least  important  of  those  met  by  the  supply  of  such  goods 
at  disposal,"  —  i.e.  by  its  marginal  utility. 

As  for  subjective  exchange  value,  it  differs  much  less  from 
value  in  use  than  it  does  from  objective  value :  it  is  simply  "  the 
importance  which  a  good  obtains  for  the  welfare  of  a  person 
through  its  capacity  to  procure  other  goods." 

But  the  word  "value"  does  not  always  suggest  the  subjective.1 
Thus  when  we  say  that  a  pound  of  gold  has  a  higher  exchange 
value  than  a  like  weight  of  iron,  we  refer  only  to  an  objective 
relation  between  commodities.  Exchange  value  in  the  objective 
sense  is  nothing  but  the  capacity  of  a  good  to  command  other 
goods  in  exchange.  It  is  a  social  phenomenon,  and  could  only 
exist  in  society,  but  Bohm-Bawerk  attempts  to  show  that  it 
rests  upon  individual  valuations.  First  he  takes  an  isolated 
pair ;  then  competition  among  a  group  of  buyers  is  introduced, 
then  among  sellers,  till  finally  two-sided  competition  is  con- 
sidered.2 To  cut  a  long  story  short,  he  concludes,  with  consider- 
able amplification  and  refinement  of  his  predecessors'  teaching, 
that  objective  exchange  value  is  determined  somewhere  between 
an  upper  limit  set  by  the  valuation  of  the  last  buyer  and  the  most 
capable  seller  excluded,  on  the  one  hand,  and  a  lower  limit  estab- 
lished by  the  valuation  of  the  least  capable  seller  —  the  last 
seller  —  and  the  most  capable  buyer  excluded.3  In  every  case 
it  is  the  narrower  of  these  double  limitations  that  decides.  "  If, 
finally,  we  substitute  the  short  and  significant  name  of  'Mar- 

1 "  Grundziige,"  Conrad's  Jahrbiicher,  1886,  p.  477. 

1  Ibid.,  pp.  492  S. ;  Positive  Theory  (Smart's  trans.),  pp.  198  ff. 

3  Ibid.,  p.  208. 


DEVELOPMENT  OF  SUBJECTIVE  VALUE  THEORIES       469 

ginal  Pairs '  for  the  detailed  description  of  the  four  parties  whose 
competition  determines  the  price,  we  get  this  very  simple  for- 
mula :  The  market  price  is  limited  and  determined  by  the  subjec- 
tive valuations  of  the  two  Marginal  Pairs." 

The  factors  which  determine  the  valuation  level  are:  the 
number  of  desires  for  the  ware,  the  height  of  the  buyers'  valua- 
tion figures,  the  quantity  of  the  ware  for  sale,  and  the  height  of 
the  sellers'  valuation  figures.  But  these  valuation  figures  are 
no  simple  quantities;  they  are  obtained  by  comparing  valua- 
tions of  the  wares  with  the  valuations  of  their  "  price  goods."  l 
This  makes  it  necessary  to  introduce  two  further  elements : 
the  absolute  quantum  of  the  subjective  value  of  the  "  price 
good  "  or  price  equivalent  to  the  would-be  buyers ;  and  the 
same  quantum  to  the  would-be  sellers. 

Bobm-Bawerk,  like  Wieser,  admits  that  cost  plays  a  part  in 
determining  value,  but  a  subordinate  and  indirect  one.2  In 
the  case  of  freely-producible  goods  there  is  substantial  identity 
of  cost  and  price ;  but  this  is  because  the  price  of  the  product 
controls,  and  the  price  of  the  cost  goods  is  the  controlled.  The 
law  of  costs  is  not  against,  nor  beside,  but  within  the  law  of  mar- 
ginal utility. 

Interest  Theories.  —  The  Austrians  have  differed  among 
themselves  as  to  the  true  theory  of  interest.  Menger  and  Wieser 
supported  what  may  be  called  a  productivity  theory;  while 
Bohm-Bawerk  holds  what  has  been  rather  unsatisfactorily 
called  an  exchange  theory,  or,  sometimes,  a  value  theory. 
Wieser  bases  interest  upon  the  productivity  of  capital  as  its 
cause.  Taking  a  series  of  cases  of  production  in  which  different 
proportions  of  capital  function,  he  concludes  that  a  part  of  the 
product  which  varies  with  the  amount  of  capital  is  imputable 
to  capital.  The  "  productive  contribution  "  imputable  to  capi- 
tal is  the  direct  cause  of  interest. 

On  this  point  Wieser  criticizes  Menger,  who  had  attempted  to 

1  Grundziige,  above  cited,  509.  The  Germans  use  the  word  "price" 
(Preis)  not  to  signify  the  money  expression  of  exchange  value,  but  the  amount 
of  any  good  received  in  exchange  for  that  sold. 

*  See  ibid.,  above  cited,  p.  540. 


470  ECONOMIC  THOUGHT 

solve  the  problem  from  the  other  side,  so  to  say,  by  observing 
what  is  lost  when  capital  or  units  of  capital  are  removed  from 
the  productive  complex,  —  a  sort  of  negative  imputation. 

As  to  this  imputational  reasoning  it  is  merely  submitted  that 
the  question,  why,  still  remains.  Granting  a  relationship  of 
cause  and  effect,  what  is  its  explanation  ?  * 

On  this  capital  and  interest  question  Bohm-Bawerk  differs 
from  Wieser,  denying  the  validity  of  the  theory  of  imputation 
and  basing  his  reasoning  upon  the  "  technical  superiority  " 
of  roundabout  processes  of  production.  In  the  process  of  pro- 
duction capital  goods  of  a  relatively  low  present  value  are  trans- 
formed or  "  ripen  "  into  consumers'  goods  of  a  higher  value. 
As  a  result  of  the  time  element  there  is  a  growth  of  values  in 
excess  of  labor  costs  from  which  interest  flows  as  a  permanent 
net  income. 

The  problem  is  to  determine  the  causes  which  guide  into  the 
hands  of  capitalists  a  part  of  the  stream  of  national  production. 
Bohm-Bawerk  makes  an  interesting  distinction  between  different 
sets  of  interest  theories :  naive  productivity  theories,  which 
regard  the  shares  in  distribution  as  separate  from  the  beginning ; 
exploitation  theories  which  look  upon  the  shares  as  forming  one 
stream  to  the  end,  where  labor  is  robbed ;  the  value  theory, 
which,  in  a  sense,  lies  between  the  two,  holding  that  the  stream 
begins  to  separate  when  it  comes  under  the  influences  which 
create  value.2  This  is  his  theory,  and  according  to  it  the  expla- 
nation of  interest  lies  in  the  valuation  process,  —  in  the  fact  that 
men  tend  to  value  the  same  good  more  highly  in  the  present 
than  in  the  future. 

All  this  stands  opposed  to  cost  theories  of  interest,  as,  for 
example,  Senior's  abstinence  theory.  Senior  gave  a  place  to  the 
time  element,  but  it  was  the  cost  of  waiting  and  abstinence  in- 
volved that  he  thought  of.  Bohm-Bawerk  denies  that  abstinence 
is  an  independent  sacrifice,  holding  that  it  cannot  be  added  to 
labor  pain  to  get  a  total  cost  cumulatively.  And  to  illustrate 

1  For  detailed  criticism  see  Ann.  Amer.  Acad.,  V,  522  f.  (Green);  and 
criticisms  on  similar  theories  of  J.  B.  Clark  and  his  followers. 

2  Capital  and  Interest,  pp.  421  f. 


DEVELOPMENT  OF  I  SUBJECTIVE  VALUE  THEORIES       471 

his  attack,  and  the  criticism  of  that  attack,  take  this  passage. 
The  planting  of  fruit  trees  is  mentioned,  and  the  alternatives 
of  a  destructive  storm  and  undisturbed  fruition  in  ten  years, 
are  assumed.  Bohm  asks,  Is  my  sacrifice  any  greater  if  the 
storm  does  not  come  and  I  wait  ten  years  for  the  fruit?  — 
thinking  the  answer  must  be  no,  and  therefore  abstinence  can- 
not be  taken  as  the  ground  of  interest  on  such  an  investment.1 
But  the  answer  should  be:  The  question  is  misleading.  As 
well  ask,  if  one  orchard  bears  100  bushels  in  ten  years,  and  an 
equal  orchard  bears  100  bushels  in  fifteen  years,  would  produc- 
tivity be  greater  in  the  latter  case  ?  —  and,  if  the  answer  be  no, 
conclude  that  the  time  element  or  difference  between  present 
and  future  estimation  plays  no  part.  At  this  point  Bohm- 
Bawerk  confounds  general  with  special  values.  In  the  long  run, 
interest  rates  must  normally  be  high  enough  to  cover  the  losses 
—  the  unrewarded  abstinences. 

In  a  supplement  to  Capital  and  Interest,  called  Recent  Litera- 
ture on  Interest,2  Bohm-Bawerk  argues  that,  if  a  good  equals 
10  in  value  now  and  6  five  years  hence,  it  would  be  uneconomic 
to  undergo  sacrifice  in  labor  and  waiting  to  exceed  the  latter 
amount,  or  6,  and  that  there  is  thus  no  room  for  a  sacrifice  aside 
from  labor  —  or  money.  This  mode  of  procedure  assumes  the 
future  value,  6.  But  the  6  cannot  be  taken  for  granted :  the 
sacrifice  is  not  limited  to  6,  but  to  10  —  6  (?). 

The  truth  appears  to  be  that  the  relation  of  future  to  present 
value  in  the  interest  problem  is  a  more  complex  one :  the  future 
gratification  is  worth  less,  partly  because  of  the  sacrifice  which  is 
involved  in  saving  and  waiting  and  which  enters  immediately 
into  the  estimation  of  the  future;  and  then  interest  must  be 
paid  —  Bohm-Bawerk  explains  how  it  can  be  paid  —  because 
men  are  unwilling  to  submit  to  any  greater  sacrifice  than  is 
indicated  by  that  estimation  of  future  value  (6?). 

It  is  another  shortcoming  of  Bohm-Bawerk's  that  he  ignores 
the  problem  of  the  determination  of  wages,  leaving  the  question, 

1  Ibid.,  p.  281. 

1  Translated  by  Scott  and  Feilbogen.    Chap.  IV. 


472  ECONOMIC  THOUGHT 

how  is  the  product  divided  between  labor  and  capital,  un- 
answered. 

The  Later  Austrians.  —  Among  the  followers  of  the  Austrian 
School,  Robert  Meyer  (Principiender  gerichten  Besteurung,  1884  ; 
Das  Wesen  des Einkommens,  1887) ;  E.  von  Phillipovich  (Aufgabe 
und  Methode  der  Politischen  Oekonomie,  1886 ;  Grundriss  der 
PolUischen  Oekonomie,  3d  ed.,  1899) ;  Sax  (Grundlegung  der 
theoretischen  Staatswirthschaft,  1887) ;  and  Robert  Zuckerhandl 
(Theorie  des  Preises,  1889)  are  especially  noteworthy.1  Phil- 
lipovich is  the  leading  general  theorician. 

The  Italian,  E.  Cossa,  the  Frenchman,  Block,  and  the  Ameri- 
cans, Patten,  Clark,  and  Fetter,  should  be  mentioned  here  as 
being  influenced  by  the  Austrians. 

Philosophy.  —  The  philosophy  which  underlies  the  Austrian 
thought  is  that  phase  of  utilitarianism  which  is  known  as  hedo- 
nism. Its  leading  idea  is  that  the  object  of  desire  is  pleasure,  and 
that  all  volitional  acts  have  happiness  as  their  goal.  In  other 
words,  men  are  assumed  to  act  upon  a  pleasure-and-pain  cal- 
culus. This  philosophy,  proceeding  as  it  does  upon  the  ground 
that  man's  ends  are  psychological,  is  at  the  bottom  of  the  sub- 
jective standpoint  of  the  school.  It  is  of  fundamental  impor- 
tance, then,  to  inquire  if  this  philosophy  be  sound.  It  has  been 
subjected  to  serious  criticism.2  Briefly,  it  has  been  objected  that 
in  making  pleasure  the  object  of  desire,  the  desire  is  taken  for 
granted,  and  so  the  cart  is  put  before  the  horse :  we  do  not  desire 
things  because  they  are  pleasurable,  but  rather  they  are  pleasur- 
able because  they  gratify  a  desire.  There  is  a  wide  difference 
between  the  hedonistic  idea  of  pleasure  causing  desire,  and  the 
true  idea,  which  regards  objects  and  activities  as  gratifying  de- 
sires and  so  giving  pleasure. 

But,  if  the  criticism  of  the  philosophy  is  sound,  what  of  the 
related  subjective  theory  of  value?  To  put  utility  forward 
as  the  force  which  controls  valuation  would  also  be  putting  the 
cart  before  the  horse,  —  but  of  that  more  in  the  following  sec- 

1  Mataja,  Seidler,  and  Komorzynski  are  also  to  be  mentioned. 

2  See  Martineau,  Types  of  Ethical  Theory;  Green,  Prolegomena  to  Ethics; 
Sidgwick,  Methods  of  Ethics;  James,  Principles  of  Psychology. 


DEVELOPMENT  OF   SUBJECTIVE  VALUE  THEORIES       473 

tion.  Certainly  a  system  of  economic  analysis  which  rests  upon 
a  hedonistic  philosophy  has  serious  limitations. 

When  it  comes  to  classifying  the  thought  of  the  Austrian 
School  under  the  heads  of  materialism  and  idealism,  the  matter 
is  not  so  simple.  Inasmuch  as  the  Austrians  are  deductive,  and 
set  out  from  more  or  less  ideal  postulates,  inasmuch  as  they 
regard  man  as  acting  upon  prospective  pleasures  and  pains 
unhampered  by  objective  limitations,  their  philosophy  shows 
evidence  of  idealism.  To  the  same  effect,  they  minimize  the 
importance  of  costs  and  scarcity  in  connection  with  marginal 
utility.  Moreover,  a  frequent  tendency  among  their  followers 
to  take  the  social  viewpoint  leads  to  the  same  conclusion.  On 
the  other  hand,  the  founders  of  the  school  were  individualists 
and  strongly  opposed  to  Socialism.  Marginal  utility  is  an  indi- 
vidual concept  conveying  the  idea  of  supply  limitations.  In 
fact,  there  seem  to  be  inconsistent  elements  in  the  Austrian 
system  of  thought,  elements  which  must  be  carefully  fused  into  a 
synthesis  if  that  system  is  to  endure.  Based  upon  utility,  and 
proceeding  from  the  subjective  viewpoint,  it  would  logically 
take  the  social  point  of  view  and  balance  total  utility  with  sub- 
jective costs;  but  instead,  it  turns  to  the  individual  and  the 
concept  of  the  margin,  —  an  individual  estimation,  not  directly 
translatable  into  social  terms.  While,  as  has  been  suggested, 
the  truth  lies  in  a  synthesis  of  idealism  and  materialism,  the 
Austrian  doctrine,  in  its  attitude  toward  objective  limitations, 
falls  short  of  the  requisite  balance :  idealism  dominates  in  the 
philosophical  basis,  while,  in  the  structure  reared  upon  it,  the 
materialistic  element  becomes  more  apparent. 

Critical  Estimate  and  Summary.  —  The  leading  Austrian 
economists  are  justly  called  a  "  school."  In  the  first  place,  they 
have  worked  in  virtual  collaboration ;  then,  they  agree  in  center- 
ing attention  upon  value,  their  value  theory  being  their  chief 
doctrine ;  and  finally,  they  proceed  from  a  common  philosophy, 
hedonism,  and  pursue  a  common  method,  the  deductive,  in  this 
opposing  themselves  to  the  Historical  School.1  Even  compared 

1  Menger  and  Bohm-Bawerk  both  are  versed  in  history,  and  neither  is 
blind  to  its  merits. 


474  ECONOMIC  THOUGHT 

with  Jevons,  they  are  distinct ;  for  he,  making  value  a  relation 
between  goods,  followed  an  objective  exchange  concept,  while 
they  hold  to  a  subjective  theory.  Thus  they  make  more  use  of 
psychology  and  less  of  mathematics  than  did  Jevons. 

The  essence  of  the  Austrian  economic  thought  lies  in  its  quest 
for  an  ultimate  and  unified  analysis  based  on  subjectivity.  And 
it  may  be  observed  in  advance  that  its  achievement  has  been 
a  deeper  analysis  of  valuation  psychology  and  a  coordination 
of  theories. 

The  significance  of  the  school  appears  most  clearly  in  contrast- 
ing it  with  the  doctrines  of  the  Classical  School.  The  Ricardian 
economics  makes  value  equal  effort  expended,  —  and  wealth, 
effort  saved;  the  Austrians  make  value  equal  utility  (margi- 
nal), —  and  wealth,  utility  or  satisfaction  secured.  The  Ricar- 
dian theory  is,  in  a  sense,  dualistic,  referring  now  to  utility,  now 
to  labor  or  effort ;  the  Austrian  theory  might  be  called  monistic, 
being  based  upon  utility  alone.  Thus  Ricardo  made  two  laws : 
one  for  non-reproducible  commodities  —  scarcity  value ;  the 
other  for  reproducible  ones  —  cost  of  production.  But  the 
Austrians  fit  costs  into  their  unified  scheme,  arguing  that  it  is 
not  cost  which  functions,  but  limitation  of  supply,  and  cost 
indirectly  through  limitation.  Wieser  writes :  "  We  have  tried, 
above  all,  to  abolish  the  dualism  of  labor  and  utility,  that  com- 
bination of  irreconcilable  causes,  which  only  proves  that  the  true 
cause  has  not  yet  been  recognized."  l  Accordingly,  while  the 
Classicists  refer  to  temporary  fluctuations  and  natural  level  as 
controlled  by  different  laws,  the  Austrians  say  there  is  one  law 
for  both ;  and  what  the  former  distinguish  as  value  in  use  and 
value  in  exchange,  the  latter  combine  as  subjective  value. 

Finally,  a  great  merit  of  the  Austrians  is  their  attempt  to 
extend  their  theory  of  value  hi  a  logical  way  to  the  factors  of 
production  and  the  distribution  of  wealth  among  them.  Ricardo 
limits  his  theory  of  value  to  commodities,  and  it  will  be  remem- 
bered that  J.  S.  Mill  was  criticized  for  not  broadly  coordinating 
his  theory  in  this  regard.  Now  Menger,  Wieser,  and  Bohm- 
Bawerk  extend  their  value  theory  to  the  means  of  production. 
1  The  Theory  of  Value,  Ann.  Amer.  Acad.,  II,  603. 


DEVELOPMENT  OF  SUBJECTIVE  VALUE  THEORIES       475 

Wieser  states  :  "  We  also  wished  to  bridge  over  the  chasm 
which  yawns  between  the  theory  of  value  and  that  of  distribu- 
tion and  especially  of  interest."  1 

In  addition  to  the  points  already  suggested,  it  may  be  said  in 
brief  general  criticism  of  the  Austrian  value  theory  2  (i)  that 
marginal  utility  is  a  purely  individual  conception,  and  that  in  no 
real  sense  can  there  be  a  social  demand  scale  ;  (2)  that  it  is 
difficult,  to  say  the  least,  to  compare  men's  judgments,  on  ac- 
count of  differences  in  sensibilities,  tastes,  and  purchasing  power, 
while  such  a  comparison  is  necessary  to  secure  an  exchange 
value;  (3)  that  the  individual's  judgment  of  value,  moreover, 
is  in  fact  influenced  by  social  forces  ;  (4)  that  their  theory  has 
the  limitations  of  one  based  on  a  pleasure-and-pain  calculus, 
being  too  abstract  in  overlooking  important  institutional  facts 
and  important  motives  ;  (5)  and  that  marginal  utility  is  itself 
an  expression  not  only  of  wants,  but  of  limitation  upon  the  satis- 
faction of  wants  set  by  supply  conditions  —  and  costs. 

The  absence  of  any  adequate  treatment  of  wages  is  a  notable 
deficiency  in  the  Austrian  writings. 

It  is  the  generally  accepted  fact  that  the  leaders  of  the  Aus- 
trian School  have  served  to  broaden  and  clarify  our  ideas  by 
emphasizing  the  subjective;  but  perhaps  a  majority  of  econo- 
mists will  now  admit  that  both  the  novelty  and  the  destruc- 
tive character  of  their  theory  have  been  overdrawn.  Objective 
limitations  remain  as  important  factors  necessary  to  the  explana- 
tion of  valuation  levels.3 


1  For  criticism  of  the  Austrians  see  the  writings  of  Dietzel,  Lexis,  Gerlach, 
and  Bortkiewicz,  in  German;  Bonar,  Carlisle,  McVane,  Veblen,and  Daven- 
port, in  English  ;  Landry,  in  French  ;  and  Loria,  in  Italian. 

3  This,  in  the  last  analysis,  is  all  that  Professor  Veblen  means  when  he 
points  out  that  the  marginal-utility  theory  is  optimistic,  Ideological,  and  not 
based  on  a  cause-and-effect  relationship.  By  adopting  a  purely  subjective 
viewpoint,  for  example,  man  is  regarded  as  acting  upon  future  consideration 
with  an  abstract  belief  in  his  power  to  control  his  destiny.  And,  in  assum- 
ing that  men  act  merely  upon  estimation  of  prospective  pleasures  and  pains, 
a  truly  scientific  cause-and-effect  basis  is  impossible.  (Cf  .  Veblen's  article 
in  Jr.  Pol.  Econ.,  XVII,  620  (1909). 


D.    GENERAL   ACCOUNT   OF    RECENT 
LEADING   SCHOOLS 


THE  difficulty  of  presenting  an  accurate  concise  account  of 
recent  and  contemporaneous  economic  thinkers  and  their  thought 
is  great.  They  have  not  acquired  a  perspective.  In  some  cases, 
even,  there  can  be  no  certainty  that  the  thought  is  quite  com- 
plete. A  hundred  years  hence  what  is  here  written  may  seem 
inconsequential,  and  the  important  thinkers  and  thoughts 
appear  slighted.  Obviously,  too,  such  an  account  opens  an  easy 
door  to  bias.  Nevertheless,  certain  advantages  are  to  be  gained 
from  the  attempt  at  a  record  which  is  more  than  a  mere  catalogue 
of  names  and  dates.  The  younger  reader  or  the  busy  man  sees 
a  reference  to  Schmoller  or  Graziani  or  Molinari,  or  he  picks  up  a 
translation  of  some  text  by  Laveleye,  Loria,  or  another,  and  if 
he  has  in  mind  some  general  characterization  of  the  conditioning 
factors  in  the  author's  work,  he  is  enabled  to  meet  the  book  with 
some  basis  for  independent  judgment.  It  is  desirable  as  helping 
one  to  become  oriented  in  the  world  of  thought  around  him,  and 
to  realize  that  all  the  time  he  is  advancing  in  a  broad  stream  of 
ideas  which  issues  from  many  points  of  view. 

The  following  chapters  also  serve  to  round  out  the  foregoing 
discussion  of  various  general  tendencies,  as  it  were,  capping  the 
climax  with  a  summary  of  existing  schools.  And  the  significance 
of  national  boundaries  in  the  molding  of  economic  thought  is 
further  emphasized. 

Partly  with  the  idea  of  lessening  the  difficulty  of  this  part  of 
the  work,  certain  limits  have  been  arbitrarily  set  and  should 
be  noted  in  advance.  Thus  no  attempt  has  been  made  to  cover 
the  field  since  1900.  Though  it  would  be  unreasonably  artificial 
to  draw  a  "  dead  line  "  through  that  year,  and  some  later  devel- 
opments will  be  referred  to,  the  discussion  virtually  ends  with  the 
closing  of  the  nineteenth  century.  Furthermore,  the  field  in 
space  is  not  all-embracing,  for  no  attention  has  been  given  to  the 
economic  thought  of  Russia,  Scandinavia,  Holland,  and  Spanish- 
speaking  countries.  The  three  first  named  have  each  produced 
excellent  economists.  It  still  remains  true,  however,  that  the 
stream  of  economic  thought  would  not  be  different  had  these 
men  not  written;  while  no  ground  of  continuity  demands  a 

discussion  of  them. 

478 


CHAPTER  XXX 

RECENT    ECONOMIC    THOUGHT    IN    GERMANY   AND 
ITALY1 

Germany. — As  already  stated,  Smith's  system  of  economics 
at  first  had  little  effect  on  German  thought,  only  to  be  rather 
closely  followed  later.  Then  Rau's  Lehrbuch  held  the  field  down 
to  the  last  generation ;  Thiinen  and  Hermann,  two  of  Germany's 
greatest  theorists,  had  little  influence  during  their  own  lifetimes. 

Scope  and  Subdivision  of  the  Science. — This  sketch — for  it  can 
be  no  more  —  of  the  more  recent  developments  in  German 
thought  may  well  open  with  Roscher,  whose  System  appeared 
in  1854,  being  notable  for  its  historical  tendency  and  breadth 
of  view.  And  the  first  point  that  demands  attention  is  the 
German  notion  of  the  scope  and  subdivision  of  the  science. 
Roscher  put  first  the  Grundlagen  der  Nationalokonomie,  dealing 
with  general  theory  and  the  interrelation  of  economic  phe- 
nomena. Then  came  his  treatment  of  technics  and  of  the 
economic  activity  of  the  state ;  and  finally  finance.2 

Somewhat  similar  tendencies  appear  in  more  recent  works. 
Thus  Conrad  (Grundriss,  1900)  divides  the  field  into  (i)  National- 

1  The  most  valuable  source  is  found  in  Die  Entwickelung  der  deutschen 
Volkswirthschaftslehre  im  neunzehnten  Jahrhundert.  Leipzig,  1908,  —  espe- 
cially the  Erster  Teil. 

See  also  Palgrave's  Dictionary;  Phillipovich,  Quart.  Jr.  Econ.,  Jan., 
1891 ;  Taussig,  ibid.,  Oct.,  1894;  Cohn,  Hist,  of  Pol.  Econ.,  Suppl.  to  Ann. 
of  Amer.  Acad.,  1894;  Handworterbuch  d.  Staatsw.  under  the  various  names, 
manuals  of  Ingram,  Eisenhart,  etc.  Cusumano's  Scuole  Economiche  della 
Germania  is  a  valuable  older  work ;  also  Meyer,  Die  neuere  Nationalokonomie 
in  ihren  Hauptrichtungen  (3d  ed.,  1882). 

2  The  titles  of  his  volumes  were  : 

I,  Grundlagen;  II,  N  ationalokonomik  des  Ackerbaues;  III,  Nat.  ok.  des 
Handels  u.  Gewerbfleisses ;  IV,  i,  System  der  Finanzwissenschaft. 

479 


480  ECONOMIC  THOUGHT 

okonomie,  dealing  with  laws  of  cause  and  effect  in  economic 
phenomena;  (2)  Volkswirthschaflspolilik,  treating  of  the  func- 
tions of  state  and  society;  (3)  Finance;  (4)  Statistics.  Also 
Wagner,  after  first  developing  a  Grundlegung  in  which  he  defines 
and  correlates  such  fundamentals  as  economic  motives  and  prop- 
erty, distinguishes  theoretic  national  economy  from  the  prac- 
tical branches;  and  finance,  though  it  is  a  part  of  the  latter, 
is  given  a  separate  place.  Indeed,  Wagner  comments  upon 
the  fact  that  there  is  no  fundamental  logical  basis  for  any 
of  these  divisions ;  simply  expediency  warrants  it. 

Not  unnaturally  those  opposed  to  the  historical  method  give 
historical  economics  a  distinct  and  less  important  place.  Menger 
(1883),  for  example,  distinguished  three  branches:  historical, 
theoretical,  and  practical,  the  last  to  cover  state  policy  and  such 
particular  practical  subjects  as  finance.  Phillipovich's  distinc- 
tion between  systematic  and  evolutionary-historic  economics 
(Grundriss,  1893)  further  illustrates  the  idea. 

This  relatively  sharp  separation  between  theoretical  and 
practical  or  applied  economics,  which  is  on  the  whole  an  admir- 
able characteristic  of  German,  thought,  is  doubtless  to  be  asso- 
ciated with  the  Kameralistic  origin  of  German  economics.  To  the 
police  (Polizei)  and  finance  of  the  Kameralists,  the  theoretical 
system  of  Smith  was  added.  Furthermore,  it  is  generally  true 
that  in  Germany  to-day  a  close  relation  between  state  and  uni- 
versity obtains  which  leads  to  an  emphasis  of  the  practical  or 
political  aspect  of  the  science  and  to  a  certain  admirable  realism. 

As  Cossa  remarks,1  however,  the  distinction  between  pure 
theory  (science)  and  practice  (art)  must  not  be  confused, 
as  it  has  been  by  some  writers,  with  the  distinction  between  the 
general  and  the  special,  although  very  often  the  former  distinc- 
tion leads  to  a  treatment  of  subjects  according  to  the  latter. 

The  prominence  given  to  statistics  may  well  be  observed, 
Conrad  and  others  having  pointed  out  its  place  as  a  distinct 
branch  of  economics. 

In  general,  in  these  matters,  German  thought  is  not  so  differ- 
ent from  that  of  others  as  formerly.  Germans  realize  that  their 
1  Introduction  to  Political  Economy,  p.  401. 


ECONOMIC  THOUGHT  IN  GERMANY  AND   ITALY       481 

subdivisions  really  grow  out  of  mere  expediency  in  presentation ; 
and  the  French  and  English-speaking  economists  often  add  a 
separate  treatment  of  finance  to  their  general  works. 

The  broader  scope  of  German  economics,  with  its  inclusion 
of  juristic  and  ethical  elements,  is  familiar  to  all,  and,  indeed,  is 
implied  in  the  foregoing  distinctions. 

Method.  —  On  the  score  of  method  there  has  been  great 
variety  and  difference  of  opinion.  The  deepest  difference  lies 
between  induction  and  deduction,  historical  and  anti-historical. 
Schmoller,  as  already  observed,  would  exclude  purely  abstract 
deductions,  and  favors  induction  from  history  and  statistics, 
together  with  deduction  from  the  known  properties  of  human 
nature.  On  the  other  hand,  the  followers  of  Menger  believe 
that  only  through  abstraction  and  deduction  can  exact  laws,  the 
goal  of  science,  be  reached.  Such  are  Wieser,  Bohm-Bawerk, 
Sax,  Zuckerhandl,  and,  to  a  less  extent,  Phillipovich. 

The  tendency  to  get  together  is  seen  in  the  position  of  Bucher 
and  Wagner.  The  latter  favors  a  considerable  use  of  induction 
from  history  and  statistics;  but,  dealing  largely  with  recent 
phenomena,  he  uses  deduction  more  and  history  less  than  does 
Schmoller.  Bucher  (1893)  has  concluded  that  historical  methods 
give  the  laws  of  the  evolution  of  peoples,  but  that  abstract 
deduction  is  necessary  in  dealing  with  the  complicated  exchange 
economy  of  to-day.  Statistics,  he  believes,  offer  some  scope 
for  induction  as  a  complementary  and  controlling  process. 

Then  various  minor  categories  exist:  the  mathematical 
(deductive),  the  statistical  (inductive),  and  the  juristic,  the 
last-named  method  being  most  frequently  associated  with  the 
Historical  School's  tendencies. 

The  most  prominent  German  exponents  of  the  mathematical 
method  are  Launhardt,  whose  Mathematische  Begriindung  der 
Volkswirthschajtslehre  appeared  in  1885  ;  and  Auspitz  and  Lieben 
(1889),  who  have  worked  out  price  curves.  These  men  follow 
in  the  footsteps  of  Jevons  and  Walras. 

Jurisprudence,  with  its  minute  logical  classifications  and  defi- 
nitions, furnishes  an  example  by  which  the  economic  thinkers 
of  Germany  have  profited.  So  Knapp  has  treated  money  as  a 
21 


482  ECONOMIC  THOUGHT 

creation  of  the  law,  Neumann  (Grundlagen,  1889)  has  applied  the 
method  to  practical  problems  of  taxation,  and  many  others  — 
like  Wagner  —  show  the  same  influence.  In  fact,  it  is  a  not 
uncommon  tendency  of  German  writers  to  go  to  extremes  in  this 
direction,  making  definitions  and  distinctions  which  are  perhaps 
useless  and  are  certainly  not  used. 

,  German  economists  have  been  foremost  in  realizing  the  im- 
portance of  statistics  as  a  means  of  verifying  theory  and  putting 
it  on  a  more  "  positive  "  basis.1  Knapp,  Lexis,  Inama-Sternegg, 
G.  v.  Mayr,  Stieda,  and  Van  der  Borght  are  recent  writers  who 
combine  economics  and  statistical  knowledge,  not  to  mention 
Professor  Wagner,  who  has  applied  the  statistical  method  to 
banking  problems.  The  names  of  Mayr  (Die  Gesetzmassigkeit 
im  Gesettschaftsleben,  1887)  and  Meitzen  (Geschichte,  Theorie, 
und  Technik  der  Statistik,  1886)  will  always  be  mentioned  in 
connection  with  statistics ;  and  perhaps  this  is  the  place  at  which 
to  recall  the  valuable  work  of  the  Austrian  professor,  Neumann- 
Spallart,  whose  Uebersichten  der  W  eltwirthschaft  began  in  1870, 
and  were  continued,  after  his  death  in  1888,  by  Juraschek. 

Schools  of  Thought.  —  Some  seven  distinct  tendencies  may 
be  distinguished  in  German  economic  thought  since  1850.  These 
are  not  all  of  equal  importance  and  are  not  mutually  exclusive, 
but  to  refer  to  them  will  help  to  an  understanding  of  the  present 
situation. 

i.  There  has  been  a  group  of  men  who  follow  the  classical 
theory,  pushing  its  conclusions  to  extremes,  and  omitting  the 
limitations  and  qualifications  found  in  the  writings  of  the 
masters  —  Epigonen,  as  the  Germans  call  them.  Such  names 
as  Prince-Smith,  Michaelis,  O.  Hiibner,  Schultz-Delitzsch, 
K.  Braun,  Treitschke,  Max  Wirth,  O.  Wolff,  Bohmert,  Emming- 
haus,  and  A.  Meyer  may  by  common  consent  be  placed  here. 
The  first  two  were  in  a  sense  the  founders  of  the  so-called  Ger- 
man Manchester  School.2  The  Vierteljahrsschrift  fur  Volks- 
wirthschaft  und  Kulturgeschichte  is  the  organ  of  this  group. 

1  See  Cossa,  Introduction,  pp.  26-27. 

2  Following  the  successful  activity  of  the  English  Anti-Corn  Law  League 
(1846),  the  ideas  of  Cobden  and   Bright  were  transplanted  to  Germany, 


ECONOMIC  THOUGHT  IN  GERMANY  AND  ITALY       483 

2.  Following  List,  a  small  group  is  notable  as  standing  in 
opposition  to  the  preceding,  and  advocating  protection :   Her- 
mann, Diihring,  —  following  Carey,  —  and  L.  Stein. 

3.  The  Historical  School.     This  school  has  been  made  the 
subject  of  a  chapter,  to  which  the  reader  is  referred.     Schmoller 
is  its  most  prominent  representative,  and  its  chief  publication 
is  the  Jahrbuch  fur  Gesetzgebung  Verwaltung  und  V olkswirthschaft 
im  Deutschen  Reich  (Schmoller),  together  with  the  Zeitschrift  fur 
Sozial-  und  Wirtschafts  Geschichte. 

4.  The   Subjective   School.     Most  of  the  members  of  this 
school  stand  for  deduction  and  more  or  less  criticism  of  the  His- 
torical School.     Here  come  the  mathematical  economists  above 
referred  to,  the  Austrian  Phillipovich,  and  perhaps  Dietzel, 
though  the  latter  has  opposed  the  Austrian  School.     Needless 
to  say,  the  members  of  the  last-named  school  are  included. 

The  three  remaining  groups  are  in  their  various  ways  inclined 
toward  Socialistic  reforms :  — 

5.  Socialism  pure  and  simple.     The  founders,   Rodbertus, 
Lassalle,  and  Marx,  having  passed  away,  Bebel  and  Liebknecht 
—  now  deceased  —  may  be  mentioned  as  the  later-day  repre- 
sentatives.    Samter,  too,  has  leanings  in  this  direction. 

6.  The  professorial  Socialists,  or  Katheder  Socialisten,  as  they 
have  been  dubbed.     The  Verein  fur  Sozialpolitik  2  is  the  organ- 
ization which  embraces  most  of  this  group,  and  through  the 
Schriften   of   this   union  they  speak.2    The   famous  Eisenach 

suffering  some  change  in  the  process.  Whereas  in  England  the  work  of  the 
Manchester  group  was  essentially  a  practical  one  based  upon  an  actual 
condition  rather  than  an  absolute  system  of  thought,  in  Germany  the  idea 
of  free  trade  was  given  an  abstract  theoretical  setting,  and  stood  for  extreme 
individualism  and  free  play  of  self-interest.  The  German  Manchester 
School  was  undermined  by  List's  ideas,  and  given  a  death  blow  by  the  His- 
torical School. 

1  See  E.  Conrad,  Der  Verein  f.  Socialpolitik  u.  seine  Wirksamkeit,  196. 

2  The  "  Professorial  Socialists  "  (Katheder  Socialisten)  are  not  Socialists, 
properly  speaking.     They  merely  stand  for  an  extension  of  the  functions  of 
the  state  to  accomplish  various  measures  of  social  reform,  and  not  for  any 
sweeping  alteration  in  the  fundamentals  of  our  social  order.     The   name 
was  given  as  a  term  of  reproach  or  criticism,  and  has  been  resented  by 


484  ECONOMIC  THOUGHT 

assembly  leading  to  the  formation  of  the  Verein  was  held  in  1872, 
with  the  cooperation  of  the  following  notable  economists :  Bren- 
tano,  Cohn,  Conrad,  Engel,  Held,  Hildebrand,  Knapp,  Knies, 
Meitzen,  Nasse,  Neumann,  Roscher,  von  Scheel,  Schonberg, 
Schmoller,  and  Wagner.  The  Verein  was  first  led  by  Nasse,  then 
by  Schmoller.  Held,  Schaffle,1  Schmoller,  and  Wagner  may  be 
named  as  its  chief  representatives.  These  men  came  together, 
not  as  the  result  of  Socialistic  agitation,  but  to  discuss  causes  of 
and  remedies  for  the  obvious  evils  that  go  to  make  up  the  labor 
problem.  They  believe  that  a  greater  proportion  of  humanity 
should  partake  of  the  culture  and  well-being  of  the  time.  They 
infuse  a  considerable  element  of  ethics.  Without  confusing 
science  and  art,  they  believe  that  it  is  the  proper  duty  of  science 
to  observe  the  results  of  measures  and  to  judge  by  rational 
standards. 

Schmoller  has  well  summed  up  the  beliefs  of  the  "Socialists 
of  the  Chair"  concerning  the  ends  and  methods  of  social  reform.2 
Reform  must  be  gradual ;  the  state  rests  on  existing  laws,  and 
to  change  these  at  one  stroke  would  expose  society  to  lawless- 
ness. It  should  be  based  upon  a  reform  in  the  character  of  those 
participating;  it  must  not  be  merely  external.  The  demands 
of  the  state  must  be  general  and  equal,  appearing  as  a  just  sacri- 
fice for  the  common  good.  And,  wherever  possible,  the  state 
should  not  take  directly,  but  should  work  indirectly  for  a  different 
future  distribution  of  income.  This  last  result  may  be  attained 
through  the  following  activities:  (i)  public  education;  (2)  fac- 
tory, building,  and  sanitation  laws  to  further  a  normal  family 
life;  (3)  technical  and  moral  encouragement  to  small  scale 

some.  It  has  been  the  source  of  considerable  misunderstanding.  The 
Verein,  moreover,  never  stood  for  a  complete  unity  of  views;  and  with 
time  new  differences  and  points  of  alignment  have  arisen. 

1  Schaffle  was  not  a  member  of  the  Verein,  however ;   and  held  peculiar 
views  concerning  the  possibilities  of  corporate  organization. 

2  Uber  einige  Grundfragen  des  Rechts  und  der  Volkswirtschaft.     Ein  ojfenes 
Sendschreiben  an  Herrn  Professor  Dr.  Heinrich  von  Treitschke.     1874-1875; 
ad  ed.,  Leipzig,  1904,  pp.  119  ff.     One   of   the   famous   controversies  in 
economic  literature.      Treitschke's  article  may  be  found  in  Preuss.  Jahr- 
bitcher,  1874 :  "  Der  Sozialismus  u.  seine  Conner." 


ECONOMIC  THOUGHT  IN  GERMANY  AND  ITALY       485 

agricultural  and  industrial  enterprise,  where  it  is  capable  of 
competition ;  (4)  recognition  of  trade  unions,  etc. ;  (5)  tax 
legislation  which  falls  upon  property  rather  than  labor,  and 
tends  to  prevent  swollen  fortunes  through  progressive  rates  on 
income  and  inheritance;  (6)  restriction  of  dishonorable  kinds 
of  industry  by  laws  controlling  stock  companies ;  (7)  agrarian 
and  real  property  laws  to  encourage  the  small  farmer ;  (8)  a 
more  humane  application  of  military  service ;  (9)  a  more  demo- 
cratically administered  national  bank ;  (10)  encouragement 
of  peasant  proprietors  on  the  state  domains;  (n)  all  possible 
reforms  in  labor  contract,  conditions  of  employment,  profit- 
sharing,  and  the  like. 

Though  Adolf  Wagner  (b.  1835)  was  one  of  those  who  united 
to  form  the  Verein,  he  has,  since  1877,  drifted  gradually  to  a 
somewhat  different  position,  holding  to  a  more  thoroughgoing 
advocacy  of  government  activity  for  social  reform.  Indeed,  he 
recognizes  the  influence  of  Rodbertus  and  Schaffle,  to  whom, 
with  von  Mohl,  he  ascribes  some  mastership.  From  1878  to 
1888  Wagner  and  Schaffle  edited  the  Tiibinger  Zeitschrijt  fur  die 
gesamte  Staatswissenschaft.  He  entered  economics  as  a  specialist 
in  statistics  and  finance.  Then,  at  the  request  of  Rau's  family, 
he  undertook  to  revise  Rau's  book,  but  finding  his  views  diverg- 
ing more  and  more  from  that  writer's,  only  the  first  part  was 
issued  in  this  way.  His  great  Lehr-  und  Handbuch  der  Politi- 
schen  Oekonomie  is  his  chief  work,  and  the  first  volume  on 
Grundlagen  der  V olkswirthschaft  (26.  ed.,  1879 ;  3d  ed.,  1892) 
contains  his  fundamental  economic  ideas.  He  has  become 
more  and  more  interested  in  the  general  principles  of  economics, 
in  treating  which  he  emphasizes  the  significance  of  juristic  forces. 

7.  Finally,  the  groups  which,  for  want  of  a  better  name,  are 
called  Christian  Socialists  are  to  be  noted.  Perhaps  "  religious 
socialists "  would  be  better.  These  men  are  conservative. 
They  are  idealistic.  They  believe  that  a  theological  basis  would 
be  best  for  society.  Ketteler,  Moufang,  and  Jorg  belong  to 
the  Catholic  branch ;  Todt  and  Stocker  to  the  Protestant. 

Value  Theory.  —  From  the  viewpoint  of  pure  theory  the  domi- 
nant note  in  Germany  is  eclecticism.  Take  value  theory,  for 


486  ECONOMIC  THOUGHT 

example.  Here  one  finds  neither  the  cost  nor  the  utility  theory 
clearly  ascendant.  On  the  whole,  it  may  be  said  that  the  straight 
marginal-utility  theory  has  few  adherents,  among  which  the 
Austrians,  Sax,  Zuckerhandl,  and  Phillipovich  deserve  especial 
mention  aside  from  the  Austrian  leaders.  The  marginal  idea 
seems  to  have  served  merely  to  develop  a  neglected  point,  leaving 
the  refined  classical  theory,  so  modified  as  to  include  develop- 
ments on  the  utility  side,  in  the  ascendant.  Wagner  is  typical.1 
Two  factors,  he  states,  determine  price :  one  is  temporary,  being 
the  relation  between  demand  and  supply ;  the  other  is  perma- 
nent, being  the  cost  of  production  where  perfect  competition 
exists.  Marginal  utility  functions  in  demand.  And  Dietzel 
would  combine  the  rival  theories,  holding  that  the  classical 
theory  gives  ample  place  for  the  recognition  of  utility ;  simply, 
the  Classicists  saw  in  labor  the  great  disposable  factor  which  is 
both  useful  and  limited  in  supply.  So  with  the  Historical  School : 
Schmoller,  while  strongly  subjective,  does  not  accept  marginal 
utility  as  the  determinant  of  market  value,  believing  that  cost 
theories  afford  a  simpler  solution. 

Others,  like  Dietzel,  Gerlach,  and  Lexis,  have  severely  criti- 
cized the  marginal-utility  theory.2 

This  situation  has  led  some  into  a  sort  of  doubting  opportun- 
ism that  might  almost  be  classed  as  skepticism.3  Thus  Gottl, 
in  Der  Wertgedanke,  ein  verhiilltes  Dogma  der  N  ationalokonomie 
(1897),  Neumann,  and  Diehl  may  be  placed  here.  These 
economists  believe  or  are  inclined  to  believe  that  there  is  no 
simple  and  single  problem  of  value,  but  perhaps  several,  varying 
with  different  classes  of  goods. 

General  Characteristics.  —  Some  of  the  chief  characteristics 
of  modern  German  economics  may  be  stated  as  follows.  It 

1  See  his  Theoretische  Sozialokonomik,  1907. 

2  Dietzel,    in     Jahrbucher  fiir    N  ationalokonomie,     1890;     Theoretische 
Sozialokonomik,    1895;    Lexis,    "  Grenznutzen "    in     Handworterbuch    der 
Staalswissenschaft;  Gerlach,  Uber  die  Bedingungen  wirtschaftlicher  Tdtigkeit. 

3  So  classed  by  Diehl  in  his  article  on  "  Die  Entwkkelung  der  Wert  und 
Preistheorie,"  in  Die  Entwickelung  der  Deutschen  Volkswirthschaftslehreim 
iQten  Jahrhundert,  Erster  Teil,  II,  71. 


ECONOMIC  THOUGHT  IN  GERMANY  AND   ITALY       487 

stands  for  nationalism  as  opposed  to  individualism  and  cosmo- 
politanism. A  careful  analysis  of  the  functions  of  the  state  is 
a  service  for  which  we  must  thank  German  thinkers.  To  be 
associated  with  this  fact,  no  doubt,  is  their  progress  in  scientific 
criticism  along  the  line  of  social  reform.  They  have  seen  that 
history  evidences  that  private  property  rights  are  neither  so 
comprehensive  nor  so  absolute  as  at  first  appears:  the  social 
side  of  property  has  been  illuminated.  Professor  Marshall  says 
it  is  true,  "  as  German  writers  have  well  urged,  that  economics 
has  a  great  and  an  increasing  concern  in  motives  connected 
with  the  collective  ownership  of  property  and  the  collective 
pursuit  of  important  aims."  l  In  general,  it  is  true  that  in  Ger- 
many socio-political  questions  seem  to  be  the  dominant  ones, 
and  most  of  the  younger  men  are  critical  as  to  the  shortcomings 
of  capitalism. 

A  broad  analysis  of  economic  motives  is  characteristic  of 
German  economic  thought.  From  Hermann  to  Wagner,  national, 
moral,  and  ethical  factors  have  been  more  often  allowed  for  than 
in  English  economics. 

These  various  characteristics  are  accompanied  by  the  preva- 
lence of  comparative  and  historical  studies.  Under  the  wide- 
spread influence  of  the  Historical  School,  monographs  dealing 
with  such  subjects  abound.  The  German  economist  tends  to 
take  the  biological  or  organic  point  of  view,  regarding  the  evolu- 
tion of  institutions  and  thus  avoiding  the  particular  form  of  ab- 
solutism so  common  in  English  and  French  economics.  Some, 
however,  have  shown  a  certain  narrowness  in  interpreting  the 
views  of  the  classical  economists,  reading  into  their  works  a 
belief  in  unlimited  competition,  freedom  of  trade,  etc.,  which  is 
not  to  be  found  there. 

Italy.2  —  No  better  illustration  of  the  relationship  between 

1  Principles,  p.  87. 

2  Rabbeno,  "Econ.   in  Italy,"  Pol.  Sci.   Quar.,Vl,  439  (1891);  Loria 
"Econ.  in  Italy,"  Ann.  Amer.  Acad.,  II,  203  (1891) ;  Palgrave's  Dictionary, 
Graziani,  "  Sulle  relazioni  fra  gli  studi  economici  in  Italia  e  in  Germania  nel 
secolo  XIX,"  in  Entwickelung  d.  deutscken  Volkswirlhschaftslehre,  No.  XVII; 
Cossa,  Introduction;  Schullern-Schratenhofen,  Die  theoretische  Nalionaloko- 
nomie  Italiens  in  neuester  Zeit  (1891). 


ECONOMIC  THOUGHT 


industrial  evolution  and  the  progress  of  economic  thought  could 
be  given  than  that  afforded  by  recent  developments  in  Italy. 
Down  to  but  little  more  than  a  generation  ago  Italy  was  torn 
and  divided,  politically  and  industrially;  while  her  backward- 
ness withheld  both  the  problems  and  the  phenomena  apparent 
in  more  advanced  states.  Accordingly,  prior  to  1870  a  shallow 
optimism  prevailed  in  economic  thought,  the  chief  contributions 
consisting  in  some  scattering  studies  in  currency  and  taxation. 
The  names  of  Gioji  and  Ferrara  may  be  noted.  The  latter's 
work  has  extended  into  the  new  period,  and,  from  him  may  be 
dated  the  beginning  of  the  modern  development  of  economics 
in  Italy.  In  general,  his  views  on  method,  government  inter- 
vention, and  the  nature  of  economic  laws  were  like  those  of 
Bastiat  and  the  French  optimistic  school.  Indeed,  Ferrara  is 
notable  as  being,  along  with  the  German,  Diihring,  a  follower 
of  Henry  Carey;  for  he  accepted  Carey's  peculiar  rent  ideas 
and  made  his  cost-of-reproduction  idea  of  value  the  center  of 
his  own  scheme  of  distribution.  Like  Bastiat  and  Carey,  he 
was  full  of  paradoxes. 

But  in  1870  Italy  became  united.  Soon  thereafter  the  phe- 
nomena of  transportation,  tariffs,  currency,  and  the  like,  began 
to  develop,  while  a  single  government  and  a  united  people  could 
confront  the  problems  which  attended  an  evil  social  and  financial 
condition.  Forthwith  a  more  scientific  study  of  such  subjects 
as  population  and  public  finance  made  its  appearance.  The 
leaders  of  the  new  movement  were  Messedaglia,  Nazzani,  and 
Luigi  Cossa. 

Messedaglia  (1820-1901)  was  the  father,  leading  the  reaction 
against  the  illogical  though  brilliant  optimism  of  Ferrara,  which 
was  then  dominant.  He  had  but  little  constructive  power,  but 
was  a  keen  analyst  and  a  careful,  accurate  worker  with  great 
powers  as  logician  and  statistician.  His  best  work  is  found  in 
the  field  of  statistics  and  public  loans.  He  will  be  remembered 
for  his  modification  of  Malthus'  statement  of  the  law  of  popula- 
tion; for  he  reasoned  that  even  as  a  tendency  the  increase  of 
population  could  not  be  in  a  geometric  ratio  —  2,  4,  8,  16 ; 
but  that  if  the  food  supply  falls  short,  the  power  of  population 


ECONOMIC  THOUGHT  IN  GERMANY  AND  ITALY       489 

to  increase  will  be  diminished  and  the  rate  of  growth  decreased. 
Thus  4  will  tend  to  produce,  not  8,  but  6,  the  result  being  an 
arithmetic  progression,  though  still  a  more  rapid  one  than  gov- 
erns food. 

Meanwhile  the  influence  of  German  economics,  which,  as  will 
be  remembered,  was  undergoing  important  developments  at  this 
same  time,  must  be  observed.  The  reaction  of  1870  was  largely 
stimulated  and  guided  by  German  thought.  Nazzani  (1832- 
1904),  for  example,  combined  the  doctrines  of  Roscher,  Schaffle, 
and  Wagner  with*  the  classical  economics.  His  writings  show 
considerable  critical  ability.1  In  the  main  he  held  to  the  Ricar- 
dian  economics  as  developed  by  Senior. 

Also  Lampertico  (Econ.  del  Popoli  e  degli  Stati,  1874)  and 
Cusumano  (Le  ScuoleEcon.  delta  Germania,  1875)  are  to  be  noted 
here. 

Luigi  Cossa  (1831-1896),  however,  was  the  first  Italian  econo- 
mist to  win  international  recognition,  and  to  him  is  due  in  a  large 
measure  the  establishment  of  Italian  economics.  The  greater 
number  of  young  Italian  economists  have  felt  Cossa's  influence 
as  a  teacher.  He  is  best  known  by  his  investigations  in  the  his- 
tory of  economic  thought,  though,  like  so  many  of  his  country- 
men, he  has  done  good  work  in  the  science  of  finance  (1875). 
His  book,  translated  into  English  as  An  Introduction  to  the  Study 
of  Political  Economy,  besides  showing  an  extensive  knowledge 
of  the  economic  literature  of  all  countries,  together  with  much 
critical  ability,  has  a  "  theoretical  part  "  which  contains  valuable 
suggestions  on  the  scope  and  method  of  economics.  He  is, 
perhaps,  too  severe  in  his  criticism  of  the  Historical  School's 
method.  Cossa  studied  in  Germany  under  Roscher  and  Stein, 
being  particularly  influenced  by  the  former. 

Naturally  these  developments  meant  war  with  Ferrara  and 
his  followers.  Ferrara  opened  the  hostilities  in  1874,  and  here 
Luzzati  won  a  name  by  a  temperate  but  weighty  rejoinder. 
This  writer's  statement  of  the  case,  as  being  typical  of  the  new 
Italian  movement,  is  worth  quoting  from :  — 

1  Sunto  di  econ.  pol.,  1873  (a  clear,  concise  text-book  much  used  in  Italy) ; 
Saggio  sulla  rendita  fondiar ia,  1872. 


490  ECONOMIC  THOUGHT 

"  Between  the  classical  economists  at  one  extreme  and  the 
socialistic  iconoclasts  at  the  other,  there  is  to-day  a  mediation 
in  the  historical  or  inductive  school.  ...  Its  adherents  do 
not  admit  a  priori  either  harmony  or  contradiction  of  interests. 
They  investigate  the  world  as  it  is,  and  not  as  it  ought  to  be.  ... 
They  admit  liberty  as  a  principle.  .  .  .  They  respect  and 
uphold  progress  equally  with  liberty;  and  where  compulsory 
social  action,  i.e.  the  action  of  the  state,  serves  to  prevent  con- 
flicts which  liberty  promotes  and  to  procure  benefits  which  lib- 
erty obstructs,  they  accept  in  their  economic  proceedings  a 
directive  action."  l 

The  new  school  founded  the  Giornale  degli  Economisti  in  1875 
as  its  organ,2  and  Ford  as  editor  spread  German  economics. 

The  most  important  Italian  economists  appear  to  be  Ricca- 
Salerno,  Graziani,  Rabbeno,  Loria,  Pantaleoni,  and  Pareto, 
though  such  men  as  Supino,  Conigliani,  and  others,  should  not 
be  overlooked. 

Of  this  group,  Ricca-Salerno  (b.  1849),  a  pupil  of  Wagner's, 
holds  somewhat  the  eclectic  position  of  his  teacher  on  the  score 
of  method,  tempering  his  classical  basis  with  a  knowledge  of  the 
historical  criticism.  He  follows  Sax  in  financial  theory,  apply- 
ing the  deductive  method  and  the  marginal-utility  analysis. 
Graziani  and  Conigliani  are  his  pupils.  The  former  has  written 
well  on  machinery  and  wages,  stock  exchanges,  and  other  topics 
in  applied  economics.  He  follows  the  Austrian  theory  of  value. 
In  this  he  is  to  be  classed  in  part  with  Pantaleoni,  whose  Prin- 
ciples of  Pure  Economics  (1889)  has  been  translated  and  is  one 
of  the  best  known  Italian  works.3  His  Theory  of  Transference 

1  Giornale  degli  Economisti,  Sept.  1875.  Cited  by  Rabbeno  in  Pol. 
Sci.  Quar.,  VI,  444. 

*  Discontinued  1878 ;  reestablished  in  1886  by  Zorli.  He  had  the  coopera- 
tion of  Pantaleoni,  Mazzola,  and  De  Viti. 

3  Pantaleoni,  however,  is  a  classicist.  He  would  define  economics  as 
Senior  and  Jevons  do.  Every  economic  theorem,  he  says,  may  be  expressed 
in  the  form  of  a  conclusion  of  a  syllogism,  having  for  its  major  premise  the 
hedonic  hypothesis.  He  goes  against  Bohm-Bawerk  in  his  theory  of  interest, 
and  also  does  justice  to  the  classical  English  economists  by  reconciling 
marginal  utility  and  marginal  cost  or  disutility.  Economic  problems  may 


ECONOMIC    THOUGHT  IN  GERMANY  AND   ITALY       491 

of  Taxes  is  also  notable.  Alessio,  too,  has  written  on  value  from 
the  Austrian  viewpoint.  Rabbeno  (d.  1897)  is  of  the  historical 
order,  showing  a  concrete,  practical  turn  of  mind,  an  inductive 
method,  and  sociological  tendencies.  His  chief  works  (1883- 
1892)  deal  with  labor,  cooperation,  and  American  protectionism. 
Loria  deserves  a  separate  paragraph,  not  because  his  views 
are  more  sound,  but  because  they  are  more  original  than  those 
of  his  fellows.1  He  makes  a  study  of  real  property  the  basis  for 
an  attack  upon  the  present  system  of  distribution.  Though 
Loria  by  no  means  accepts  the  organic  conception  of  society, 
his  peculiar  contributions  largely  lie  in  the  field  of  sociological 
economics.  He  follows  a  hedonistic  philosophy  and  a  purely 
economic  interpretation  of  history;  morals,  law,  and  politics 
are  not  causes,  but  results,  of  economic  conditions.  But  land  is 
the  corner  stone  of  the  system.  Capitalistic  property  is  founded 
upon  the  violent  suppression  of  free  land.  Thus  no  mere  laws 
could  remedy  present  evils,  but  only  a  diffusion  of  property. 
In  his  latest  writings  he  defends  the  right  of  each  man  to  land, 
and,  as  a  practical  remedy,  suggests  the  payment  by  employers 
of  a  "  territorial  wage  "  for  a  term  of  years,  with  the  idea  that 
at  the  end  of  the  period  substantial  equality  would  exist  —  as 
in  "  final  "  or  primitive  society  —  and  cooperation  could  be 
hoped  for.2  Loria  appears  to  overlook  the  significance  of  bases 
for  capitalization  other  than  land ;  and  few  will  accept  so  rigidly 
economic  an  interpretation  of  human  motives  and  history. 

be  solved  indifferently  in  terms  of  cost  or  of  degrees  of  utility  (p.  1 73).  "  But 
whoever  admits  this,  must  recognize  that  the  new  doctrines  of  the  final 
degrees  of  utility  are  a  no  less  unexpected  than  crushing  demonstration  of 
the  precision,  elegance,  and  truth  of  all  the  theorems  of  the  orthodox  and 
classic  economists."  (Id.,  note.) 

1  Chief  works :  — 

La  rendita  fondiaria  e  la  sua  elisione  naturale,  1879. 
Analisi  della  proprield  capitalista,  1889. 
Studii  sul  valor  e  della  moneta,  1891. 
La  terra  ed  il  sistemia  sociale,  1892. 

2  Constituzione  economica  odieria,  1900.     See  also  La  rendita  fondiaria  e  la 
sua  elisione  naturale,  1879;    and  Economic  Foundations  of  Society,  London, 
1899. 


4Q2 


ECONOMIC  THOUGHT 


Following  the  classification  of  German  schools,  one  finds  that 
all  the  tendencies  are  similarly  manifested  in  Italy,  excepting 
that  the  protectionist  policy  has  little  or  no  hearing  among 
economists,  and  the  more  radical  aspects  of  Socialism  are  almost 
equally  weak. 

Up  to  1900  the  most  prominent  group  has  been  the  historical. 
Here  come  Fornari,1  Toniolo,  Supino,2  Ricca-Salerno,8  Loria,4 
A.  Montanari,6  and,  in  most  respects,  Rabbeno.  It  must  be  noted, 
however,  that  these  men  stand  for  a  degree  of  eclecticism  not 
associated  with  the  most  typical  members  of  the  German  school. 
They  hold  fast  to  a  larger  part  of  the  classical  English  economics 
than  their  German  models.  Closely  connected  is  a  group  of 
sociological  economists:  Boccardo,  Cognetti,6  and  Rabbeno. 

State  Socialism  of  the  Chair,  so  called,  has  Ferraris  as  its  chief 
representative,  and  Montara7  —  and  perhaps  Luzzati  —  may  be 
mentioned  here.  Ferraris  is  one  of  Wagner's  pupils. 

The  conflicting  German  tendency,  the  Austrian  School,  has 
been  quite  active  in  Italy,  as  would  be  inferred  from  its  adoption 
by  such  men  as  Graziani,8  Mazzola,E.  Cossa,9  and  Conigliani  (d. 
i90i).10  As  already  indicated,  Pantaleoni  accepts  the  marginal- 
utility  idea  of  value  in  an  eclectic  sort  of  a  way,  but  by  no  means 
follows  the  Austrian  School  in  their  typical  conclusions  concern- 
ing cost  and  interest.  After  all,  it  is  in  finance  rather  than  in 

1  Teorie  economicke  nelle  Provincie  Napoletane,  1882-1888. 

La  Scienza  Economia  in  Italia  nel  Secolo  XVI-XVII,  1888. 

Storia  delle  Dottrine  Finanziarie  in  Italia,  1881. 

Teoria  del  Valore  negli  Economisti  Ilaliani,  1882. 

Contributo  alia  Storia  della  Teoria  del  Valore  negli  scrittori  Ilaliani,  1889. 

Bora  1844;  died  1891.  Chief  works:  Le  forme  primitive  dell'  evoluzione 
economica,  1881;  Socialisms  Antico,  1889;  //  Socialismo  negli  Stati  Uniti, 
1891 ;  On  the  Formation,  Structure,  and  Life  of  Commerce.  Excellent  at 
historical  research,  Cognetti  was  not  strong  at  nice  reasoning  in  economic 
theory. 

7  Doveri  delle  Proprietd  Fondiari,  1885. 

8  Storia  critica  della  Teoria  del  Valore,  1889. 

9  Le  forme  naturale  della  economia  sociale,  1890. 

10  La  riforma  delle  leggi  sui  tributi  locali,  Modena,  1898;  Saggi  di  economia 
politico,  1903. 


ECONOMIC  THOUGHT  IN  GERMANY  AND  ITALY       493 

general  theory  that  the  Austrians  have  made  most  converts  in 
Italy. 

This  most  recent  tendency  has  found  determined  resistance, 
Supino,1  Loria,2  and  Rabbeno  having  broken  valiant  lances  in 
attacking  it.  These  critics  seem  agreed  that  the  emphasis  of 
"  marginal  utility,"  including  as  it  does  the  ideas  of  utility  and 
scarcity  in  a  single  word,  means  little  but  a  change  in  terminol- 
ogy, while  they  regard  the  purely  subjective  tendency  as  one- 
sided and  as  leading  to  the  use  of  standards  which  cannot  be 
precise. 

All  authorities  seem  agreed  that  the  Italians  have  a  notable 
tendency  to  eclecticism  in  economics.  They  soften  and  har- 
monize the  teachings  of  various  schools.  Beginning  with  the 
classical  economics,  they  fell  under  the  influence  of  Bastiat  and 
Carey,  and  somewhat  modified  the  English  doctrines  in  the 
direction  of  optimism.  To  this  condition  came  the  historical 
tendency,  out  of  which  admixture  arose  the  dominant  historico- 
liberalistic  eclecticism  of  recent  times.  Even  the  marginal- 
utility  theorists  make  some  modification,  approaching  more 
closely  the  classical  theories,  and  so  making  a  fusion  with  the 
other  group  less  difficult. 

When  all  has  been  said,  it  remains  true  that  well  down  to  the 
close  of  the  last  century  the  original  contributions  of  Italian 
thought  to  the  progress  of  economic  science  had  been  slight. 
But  as  Italy  develops  industrially,  and  as  Italian  thinkers  enrich 
the  soil  of  a  national  economic  literature,  those  useful  studies  in 
the  history  of  Italian  theory  led  by  L.  Cossa  will  surely  bear 
fruit.  Already  one  may  consult  Italian  works  with  advantage, 
and  the  time  is  at  hand  when  the  advanced  student  who  can  only 
master  two  foreign  languages  may  perhaps  hesitate  between 
French  and  Italian. 


1  Giornale  degli  Economisti,  1889. 
1  Nuova  Antologia,  April  i,  1890.  J 


CHAPTER   XXXI 

RECENT    ECONOMIC    THOUGHT   IN    ENGLAND    AND 
FRANCE 

England.1  —  The  more  recent  developments  in  the  eco- 
nomic thought  of  England  have  been  touched  upon  to  some 
extent  in  preceding  chapters.  Thus  Jevons  has  been  dis- 
cussed; and  the  concrete-historical  work  of  Bagehot,  Leslie, 
Toynbee,  Rogers,  and  Ingram  has  been  outlined.  Thornton 
and  others,  too,  were  mentioned  in  connection  with  the  down- 
fall of  the  wages-fund  theory.  In  short,  the  way  has  been  pre- 
pared for  a  brief  general  statement  of  the  English  economics 
and  economists  of  very  recent  times. 

For  about  a  generation  after  1850  the  Ricardian  economics  as 
restated  by  Mill  reigned  supreme  in  England.  Its  spirit  and 
that  of  its  followers  were  quite  absolute  and  dogmatic.  To  be 
unorthodox  in  economics  was  a  serious  reproach.  The  tone  of 
the  whole  system  was  decidedly  materialistic  and  neglectful  of 
ethical  factors,  and,  needless  to  say,  deduction  was  its  logical 
weapon. 

Henry  Fawcett  (1863)  and  John  Elliott  Cairnes  (1824-1875) 
may  be  named  as  the  leaders  of  the  later  classicists.  Fawcett 
did  little  more  than  present  a  compendium  of  Mill's  economics. 
Cairnes,  however,  was  an  acute  and  original  thinker,  whose  works, 
entitled  Some  Leading  Principles  of  Political  Economy  and  Char- 
acter and  Logical  Method  of  Political  Economy,  have  had  much 
influence.  The  former  is  notable  for  its  portions  on  Value  and 

1  Beside  the  works  of  the  authors  referred  to,  see  Foxwell,  "  Economic 
Movement  in  England,"  Quart.  Jr.  Econ.,  II  (1887) ;  Ashley, "The  Present 
Position  of  Pol.  Econ.  in  England,"  in  Die  Entwickelung  d.  Deutschen  Volks- 
wirthschaftslehre,  Erster  Teil;  Palgrave's  Dictionary;  Price,  Political 
Economy  in  England;  etc. 

494 


ECONOMIC  THOUGHT  IN  ENGLAND   AND  FRANCE       495 

International  Trade.  It  is  in  the  part  on  value  that  the  author 
discusses  non-competing  industrial  groups,1  the  theory  of  which  will 
ever  be  associated  with  his  name.  In  view  of  Thornton's  and 
Jevons'  attacks  upon  the  classicists,  Cairnes  restates  and  modi- 
fies the  theory  of  value,  emphasizing  the  effect  of  prospective 
supply,  and  denning  demand  as  desire  accompanied  by  purchas- 
ing power  measured  by  the  quantity  offered.  At  this  point  he 
severely  criticizes  Mill.2 

In  method,  he  was  on  the  whole  deductive.  He  held  that  with 
nothing  but  strict  induction  the  economist  could  reason  till  the 
crack  of  doom  and  get  nowhere.  His  definition  of  economics  is 
typical :  "  the  science  which,  accepting  as  ultimate  facts  the 
principles  of  human  nature,  and  the  physical  laws  of  the  external 
world,  as  well  as  the  conditions,  political  and  social,  of  the  several 
communities  of  men,  investigates  the  laws  of  the  production  and 
distribution  of  wealth,  which  result  from  their  combined  opera- 
tion." As  compared  with  Ricardo,  the  method  pursued  by 
Cairnes  was  an  advance,  in  that  he  did  put  many  of  his  deduc- 
tions to  the  test  of  facts. 

Cairnes,  however,  is  open  to  criticism  on  the  score  of  narrow- 
ness. He  hardly  grasped  Jevons'  idea  of  final  utility,  and  con- 
sequently saw  no  good  in  it.  Similarly  he  was  inclined  to  state 
too  absolutely  the  application  of  his  non-competing  groups. 

But,  in  a  way,  Cairnes  was  in  his  day  the  last  of  the  English 
classicists.  Forces  were  at  work  which  wrought  great  modifi- 
cation in  the  old  viewpoint.  In  the  first  place  came  a  broaden- 
ing of  economic  analysis  which  arose  from  a  recognition  of  the 
interrelation  of  ethical  factors ;  it  became  affected  with  a  hu- 
manitarian interest.  The  labor  movement  was  largely  respon- 
sible for  this  development.  In  the  same  year  that  Cairnes  died 
(1875),  Parliament  passed  the  Conspiracy  and  Protection  of 
Property  Act,  and  shortly  thereafter  the  Trade  Union  Acts  (1871, 
1876),  which  legislation  gave  greater  legal  rights  to  organized 
labor.  Toynbee  was  only  one  of  many  whose  thought  was 
largely  colored  by  sympathy  for  labor.  The  attacks  of  Carlyle 

1  Part  I,  Chap.  Ill,  §  5.  2  Ibid.,  Chap.  IV,  §  3. 


496  ECONOMIC  THOUGHT 

(Past  and  Present,  1843),  and  of  Ruskin,1  too,  no  doubt  had 
their  effect. 

At  the  same  time  the  criticisms  of  the  Historical  School  were 
working  to  give  a  less  absolute  and  abstract  cast  to  English 
thought.  This  development  began  notably  with  Leslie,  who  had 
been  influenced  by  Sir  Henry  Maine  and  the  German  school.  It 
is  interesting  to  note  that,  just  as  in  the  case  of  France  herself, 
England's  attention  was  attracted  to  Germany  and  German 
thought  as  a  result  of  that  nation's  success  in  the  Franco-Prus- 
sian war  (1870). 

And,  oftentimes  associated  with  the  historical  viewpoint, 
there  came  a  notable  development  in  the  biological  sciences. 
The  names  of  Spencer,  Darwin,  and  Huxley  cannot  pass  unmen- 
tioned  here,  for  their  philosophy  and  method  have  had  no  small 
influence  upon  economic  concepts. 

It  is  difficult  to  say  just  what  progress  has  been  due  to  the 
mere  activity  of  theoretical  criticism  proceeding  from  within, 
as  it  were,  and  uncolored  by  the  above  developments  from  with- 
out. For  example,  it  might  not  be  easy  to  say  how  much  of  the 
downfall  of  the  wages-fund  theory  was  due  to  the  activity  of 
labor  organizations,  and  how  much  due  to  a  recognition  of  the 
inherent  logical  weakness  of  the  theory.  Such  progress,  how- 
ever, has  been  exemplified  in  the  work  of  Cairnes,  Jevons,  Mar- 
shall, and  J.  A.  Hobson  ;  and  the  theories  of  the  American  econ- 
omist, F.  A.  Walker,  had  great  influence  in  England. 

All  these  developments  involving  the  overthrow  of  "  ortho- 
doxy "  came  to  a  head  in  the  decade  1870-1880,  and,  for  a  time, 
economics  was  a  much  discredited  science. 

Meanwhile,  there  had  been  no  effective  teaching  of  economics 
in  the  colleges  and  universities, — "  no  real  working  professorship 
of  political  economy  in  Great  Britain  comparable  to  the  ordinary 
professorships  in  any  German  university,"  as  Professor  Ashley 
puts  it.2  Then  Jevons  made  the  most  of  a  chair  of  political 
economy  and  logic  at  Owens  College ;  a  chair  was  founded  at  Edin- 

1  E.g.,Munera  Pulveris,  1872,  Unto  this  Last,  1860;  Fors  clavigera,  Letters 
to  the  Workmen  and  Labourers  of  Great  Britain,  1871-84. 

1  Just  as  in  France  some  of  England's  best  economic  thought  has  come 


ECONOMIC  THOUGHT  IN  ENGLAND  AND  FRANCE       497 

burgh  in  1871 ;  and,  above  all,  in  1885  the  chair  at  Cambridge 
was  taken  by  Professor  Marshall,  insuring  effectiveness  at  one 
of  the  older  universities.  In  1890  the  British  Economic  Asso- 
ciation was  founded,  and  the  following  year  the  Economic  Jour- 
nal, with  Professor  Edgeworth  as  editor,  became  its  organ.  The 
Economic  Review,  the  organ  of  the  Christian  Social  Union,  was 
established  in  the  same  year.  From  this  time  on  the  spread  of 
economic  teaching  was  rapid. 

When  one  turns  to  the  question,  to  what  extent  are  the  va- 
rious schools  or  tendencies  in  economic  thought  represented  in 
England,  notable  absences  appear  in  the  case  of  that  active 
spirit  of  social  reform  in  academic  circles,  often  somewhat  mis- 
leadingly  called  "  Socialism  of  the  Chair,"  and  also  in  the  case 
of  the  optimism  found  in  France,  Italy,  and  the  United  States.1 
For  the  rest,  the  Historical  School  is  represented  by  such  men 
as  Rogers,  Cunningham,  Ashley,  and  Unwin ;  the  Austrian  or 
marginal-utility  idea  by  Wicksteed,  Edgeworth,  and  Smart ;  and 
the  Classical  School  by  Sidgwick  (1838-1900),  Nicholson,  and 
Marshall.  Wicksteed  and  Edgeworth  are  prominent  exponents 
of  the  mathematical  method,  in  which  Marshall  is  also  an  adept. 

Henry  Sidgwick's  Principles  of  Political  Economy  was  pub- 
lished in  1883,  and  undoubtedly  did  much  to  regain  for  economics 
some  of  the  respect  it  had  lost.  The  book  is  based  upon  Mill, 
amended  by  Jevons'  theory,  with  Walker's  wages  theory  in- 
cluded. It  is  notable,  too,  that  the  Germans,  Held  and  Wagner, 
are  referred  to.  Sidgwick  lays  marked  emphasis  upon  the  theory 
of  value  and  exchange.  While  holding  that  Mill's  theory  of  value 
is  sound  in  the  main,  he  points  out  that  "  equation  of  supply  and 
demand  "  is  deficient  as  an  explanation  of  exchange  value  when 
both  supply  and  demand  vary  with  price.  The  fact  that  cost 
is  to  some  extent  determined  by  demand  is  also  indicated. 

In  connection  with  the  theory  of  international  values,  Mill 

without  academic  circles.  In  more  recent  times  there  are,  to  mention  just 
a  few,  Bagehot,  Booth,  Rowntree,  Palgrave,  Webb,  and  Hobson. 

1  The  latter  line  of  thought  is  to  some  extent  represented  by  the  states- 
man, Robert  Giffen.      Perhaps  J.  A.  Hobson,  though   outside   academic 
circles,  might  be  classed  as  a  representative  of  the  former  movement. 
2  K 


498  ECONOMIC  THOUGHT 

is  again  criticized,  and  originality  is  shown  in  the  discussion  of 
the  importance  of  cost  of  carriage  in  the  problem. 

Sidgwick  analyzes  the  Ricardian  theory  of  rent  into  a  confusion 
of  three  different  ideas :  (i)  a  historical  theory  of  rent  origins, 
(2)  a  static  theory  of  present  tendency,  (3)  a  dynamic  theory  of 
tendency  to  increase  in  the  future  as  population  and  wealth  in- 
crease.1 This  point  is  characteristic :  Sidgwick's  work  is  subtly 
analytic,  and  his  critical  examination  of  the  fundamental  con- 
cepts of  economics  is  noteworthy. 

Alfred  Marshall,  until  recently  Professor  of  Political  Economy 
at  Cambridge,  is  admittedly  the  greatest  living  English  econo- 
mist. Indeed,  there  is,  perhaps,  no  contemporary  economist  who 
surpasses  him  in  constructive  general  theory.  Marshall's  chief 
works  are  Economics  of  Industry  (1879)  —  with  Mrs.  Marshall  as 
joint  author  — and  Principles  of  Economics,  1890  (5th  ed.,  1908). 

Marshall's  great  work  has  been  to  take  the  English  classical 
economics  at  a  time  when  it  had  fallen  into  considerable  disrepute, 
and,  by  interpretation  and  modification,  so  to  round  it  out  and 
adjust  it  as  to  place  it  abreast  of  the  best  recent  thought,  and 
regain  for  it  the  respect  of  the  world.  A  recent  criticism  of  eco- 
nomic theories  has  a  chapter  headed,  "  The  Attempt  at  Recon- 
ciliation ;  Marshall,"  2  and  this  is  a  fairly  good  characterization. 
"  Marshall's  synthesis  "  might  have  been  better. 

On  the  whole,  Marshall  falls  in  the  Classical  —  or,  perhaps, 
Neo-Classical  —  school,  and  his  most  frequent  logical  weapon 
is  deduction.  But  he  seeks  the  truth  in  the  golden  mean.  He 
calls  a  halt  to  mere  historical  grubbing  and  organic  metaphors, 
asking  for  careful  and  rigorous  reasoning,  and  declaring  that "  the 
growing  prominence  of  what  has  been  called  the  biological  view 
of  the  science  has  tended  to  throw  the  notions  of  economic  law 
and  measurement  into  the  background."  Yet  he  accepts  the 
idea  of  relativity,  and  recognizes  the  contributions  of  biological 
sciences.  He  rejects  Comte's  idea,  according  to  which  economics 

1  Book  II,  Chap.  VII,  §  i. 

2  Davenport,  Value  and  Distribution,  Chap.  XX.     It  is  true  that  Mar- 
shall may  be  justly  criticized  for  reading  too  much  into  the  words  of  the  old 
English  economists,  J  Principles,  4th  ed.,  p.  72. 


ECONOMIC  THOUGHT  IN  ENGLAND  AND  FRANCE   499 

would  be  fused  in  a  general  social  science,  and  defines  econom- 
ics as  dealing  with  those  motives  and  desires  of  man  which  can  be 
measured  by  money. *  On  the  other  hand,  he  writes :  "  Even 
for  the  narrower  uses  of  economic  studies,  it  is  important  to 
know  whether  the  desires  which  prevail  are  such  as  will  help 
to  build  up  a  strong  and  righteous  character,"  2  and  does  due 
homage  to  German  analysis  of  motives.  Both  induction  and 
deduction  are  recognized  as  having  their  places,  and  Schmoller 
is  quoted  with  approval.  Simply,  where  there  is  still  uncertainty 
as  to  causes,  analysis  and  deduction  are  needed.  History  shows 
that  one  event  follows  another ;  but  the  historical  method  does 
not  show  the  causal  connection.  Marshall  holds  that  enough  of 
generality  exists  in  certain  economic  characteristics  to  base  gen- 
eral laws  upon  :  that,  making  the  usual  allowance  for  equality  in 
conditions,  there  are  laws  or  tendencies  which  resemble  the  sec- 
ondary laws  of  natural  science.  But  in  economics  they  must 
be  handled  with  peculiar  care.3 

Marshall's  economics  certainly  has  a  practical  element  in  it ; 
nor  is  it  free  from  "  preaching  "  and  advocacy  of  reforms.  This 
side  does  not  seem  to  warp  the  scientific  character  of  the  conclu- 
sions. 

Marshall  has  brought  together  in  a  masterly  way  the  Austrian 
analysis  and  the  cost  concepts  of  his  English  predecessors.  Util- 
ity is  one  side  of  the  arch  whose  keystone  is  value,  or  one  blade 
of  the  pair  of  scissors,  with  cost  as  the  other.  Both  blades  cut. 
They  mutually  determine.  Thus  he  avoids  the  one-sided  em- 
phasis of  both  schools,  and  makes  marginal  utility  the  two-sided 
thing  that  it  is.  Though  at  points  he  appears  to  confuse  price 
—  a  ratio  between  marginal  utilities  —  with  the  marginal  utility 
of  the  thing  purchased,4  his  treatment  of  "  demand  price  "  is 
sound,  and  is  a  contribution  to  economics.6 

In  the  light  of  recent  developments  in  thought  concerning 
differential  returns,  Marshall  has  broadened  the  classical  theory 


1  With  due  limitations.    *  Principles,  4th  ed.,p.  77.     *  See  pp.  93, 101. 
4  E.g.  p.  174.     See  Davenport,  as  above  cited. 
6  See  Bk.  Ill,  Chap.  II,  §§  2  ff. 


500  ECONOMIC  THOUGHT 

of  rent  along  lines  already  suggested  by  J.  S.  Mill.  He  by  no 
means  sees  the  necessity  or  expediency  of  abandoning  a  recog- 
nition of  the  peculiarity  of  land  rent,  but  adopts  the  term,  "  quasi- 
rent,"  to  denote  those  less  permanent  differentials  which  may 
be  yielded  by  the  superior  productivity  of  units  of  capital  or 
labor. 

The  device  of  the  "  representative  firm  "  is  one  of  the  more 
questionable  characteristics  of  this  author's  thought.  Such  a 
firm  is  one  which,  as  others  rise  and  fall,  continues  on  an  average 
level  of  prosperity  while  meeting  normal  (or  average  ?)  expenses 
for  labor,  including  management  and  capital.  This  representa- 
tive firm  serves  somewhat  the  same  end  in  his  reasoning  that 
the  marginal  one  ordinarily  does  for  others.  Marshall's  device 
may  be  merely  an  expression  of  his  belief  that  under  his  assump- 
tions as  to  competition,  and  in  the  long  run,  all  producers  just 
meet  normal  expenses  and,  in  this  sense,  all  are  marginal.  Thus 
it  would  be  valid  —  if  not  useful  —  for  long  periods,  but  would 
be  indefinite,  and  perhaps  misleading,  for  shorter  periods.1 

One  of  the  most  notable  features  of  Marshall's  thought  is  his 
development  of  the  idea  of  the  surplus.  He  includes  not  only 
land  rent,  as  a  surplus  above  cost,  but  also  the  vaguer  ideas  of 
"consumers'  surplus"  and  "workers'  surplus."  The  former 
appears  to  rest  largely  upon  a  psychological  basis,  and  is  briefly 
defined  as  the  excess  of  the  total  utility  of  a  commodity  over  the 
"  real  "  value  of  what  is  paid  for  it.2  The  consumer  of  matches, 
salt,  and  newspapers  enjoys  or  may  enjoy  such  an  excess.  It 
might  also  be  called  a  net  benefit  derived  from  fortunate  sur- 
roundings or  conjuncture.  Workers'  surplus,  on  the  other 
hand,  is  the  excess  of  remuneration  coming  from  payments  for 
total  work  made  at  the  same  rate  paid  for  the  last  and  most  costly 
part,  —  with  a  deduction  for  the  trouble  of  acquiring  skill,  etc.3 
Similarly,  a  savers'  surplus  is  distinguished  in  the  case  of  the 
capitalist.  These  surpluses,  it  will  be  observed,  are  not  meas- 
ured from  the  payments  necessary  to  secure  the  cooperation  of  the 

1  It  suggests  Adam  Smith's  reasoning  as  to  labor  and  value.     See  above, 
pp.  169  f. 

2  Principles,  4th  ed.,  pp.  124,  830.  *  Ibid.,  p.  830. 


ECONOMIC  THOUGHT  IN  ENGLAND  AND  FRANCE   501 

factors  of  production,  nor  from  the  subsistence  level ;  but  depend 
upon  sensibilities,  and  their  elasticity,  and  upon  surroundings. 
Marshall's  treatment  of  quasi-rent  also  makes  it  a  temporary 
surplus  on  all  material  agents,  it  being  the  excess  of  total  money 
returns  over  the  direct  outlay.  C  While  it  is  well  to  call  attention 
to  such  matters  as  a  possible  consumers'  surplus,  and  the  idea 
has  been  widely  adopted,  its  value  in  a  purely  economic  analysis 
may  be  questioned. 

^  In  this  connection  Hobson's  treatment  of  surplus  will  not  be 
forgotten.  In  his  Economics  of  Distribution  (1900),  he  reasons 
that  distribution  is  carried  on  through  the  fixing  of  market 
prices,  accompanied  by  a  process  of  bargains  in  which,  by  the 
superior  economic  strength  or  cunning  and  varying  differential 
estimates  of  buyers  and  sellers,  a  "  forced  gain  "  is  obtained,  leav- 
ing the  weaker  bargainers  a  bare  minimum  inducement.  "  Thus 
emerges  the  true  surplus  value,  derived  not  from  some  vague,  un- 
intelligible idea  of  tyranny,  but  from  the  various  hindrances  to 
perfect  equality  of  bargaining-power  in  the  owners  of  the  vari- 
ous factors  of  production,  and  the  consequent  establishment  of 
different  forms  and  pressures  of  economic  force."  *  According 
to  this  theory,  surpluses  may  be  found  anywhere,  and  are  not 
confined  to  rent  or  profits  only,  and  a  conclusion  drawn  from  it 
is  that  taxes  upon  commodities  are  not  necessarily  borne  by 
consumers,  but  may  merely  absorb  some  one  of  the  numerous 
"  forced  gains."  It  may  be  objected  that  many  of  these  so-called 
surpluses  may  be  better  explained  as  rewards  for  superior  skill 
in  bargaining  —  as  differential  wages,  for  example ;  and  in  other 
cases,  they  appear  to  resemble  Marshall's  consumers'  surpluses 
in  their  origin/ 
J.  S.  Nicholson,  in  his  well-known  Principles  of  Political  Econ- 

1  p.  360.  Hobson  holds  to  a  large  part  of  the  framework  of  the  Classi- 
cal doctrines  (Economics  of  Distribution,  1900),  but  rejects  the  ideas  of  the 
beneficence  of  competition,  and,  apparently,  of  diminishing  returns.  In  his 
Evolution  of  Modern  Capitalism,  1901,  and  The  Industrial  System,  1909,  he 
shows  leanings  toward  a  sort  of  State  Socialism  in  suggesting  government 
monopoly  as  the  alternative  to  the  absorption  of  all  "forced  gains"  by  tax- 
ation. 


ECONOMIC  THOUGHT 

omy,  presents  a  survey  of  economic  principles  based  on  Mill, 
adapting  the  classical  doctrines  in  the  light  of  historical  criticism 
on  the  one  hand  and  of  advanced  mathematical  analysis  on  the 
other.  The  treatment  of  relative  prices,  and  of  profits  and  wages, 
has  been  thought  especially  noteworthy. 

The  various  brands  of  Socialism  all  have  appeared,  though 
Marxian  Socialism  has  gained  relatively  little  ground.1  Chris- 
tian Socialism,  so  called, 2  —  not  Catholic  —  has  had  such  well- 
known  leaders  as  Kingsley,  Ludlow,  and  Hughes.  England  is 
the  peculiar  home  of  that  opportunist  order  of  Socialism  called 
Fabian,  of  which  Webb  is  the  best-known  representative. 

It  is  perhaps  true  that  in  England  the  question  of  land 
nationalization  has  been  discussed  with  relatively  great  fre- 
quency. The  attention  given  the  question  by  Mill  has  been  in- 
dicated, and  such  men  as  Dove  and  Wallace  have  become  known 
in  this  subject.3 

The  most  recent  development  in  English  thought  has  been  a 
renewal  of  interest  in  the  tariff  question.4  With  increasingly 
effective  competition  from  Germany  and  the  United  States,  the 
question  has  long  been  raised  as  to  whether  England  cannot  pro- 

1  On  Socialism  in  England,  see  Flint,  Socialism,  Chap.  II,  and  supple- 
mentary note ;  Webb  (S.),  Socialism  in  England;  Villiers,  The  Socialist  Move- 
ment in  England. 

2  It  will  be  remembered  that  Christian  Socialists  are  commonly  not 
Socialists  in  the  technical  economic  sense  of  the  term.     Their  ideas  are 
not  generally  very  definite  and  as  a  rule  they  stand  merely  for  reform 
of  various  particular  social  evils.     However,  there  is  a  real  Socialism  which 
bases  its  doctrines  on  the  teachings  of  Christ. 

3  Patrick  E.  Dove  (1815-1873)  believed  in  a  natural  right  to  liberty  and 
property  which  should  be  confirmed  by  legislation.     He  was  not  a  Socialist, 
nor  was  he  revolutionary.     But  he  favored  taking  taxation  from  labor,  and 
placing  it  chiefly  upon  land.     His  views  may  be  traced  in  his  Theory  of 
Human  Progression  (1850),  but  are  elaborated  in  the  Elements  of  Political 
Science  (1854).     A.  Russell  Wallace's  chief  work  in  this  connection  is  Land 
Nationalization,  its  Necessity  and  its  Aims  (1882).     He  advocates  common 
ownership  with  cultivation  by  leaseholders,  the  land  being  let  to  the  highest 
bidder. 

4  Beginning  about  the  early  nineties,  and  reaching  a  climax  with  Joseph 
Chamberlain's  activities  from  1903  on. 


ECONOMIC  THOUGHT  IN  ENGLAND  AND  FRANCE   503 

tect  herself  by  establishing  preferential  relations  with  her  nu- 
merous colonies  and  by  offsetting  foreign  bounties  and  aids  by 
tariffs  on  imports  of  manufactures.  Ashley,  Cunningham,  and 
Welsford  have  favored  "  tariff  reform  "  ;  Smart,  Pigou,  Dawson, 
Money,  and  Farrer  have  opposed  it. 

France  1  (and  Belgium). — The  first  real  economists,  the  Phy- 
siocrats, were  Frenchmen,  and  to  France  belongs  an  honorable 
part  in  the  founding  of  the  science  of  political  economy.  But 
with  the  close  of  the  eighteenth  century,  it  will  be  remembered, 
England  took  the  lead,  and  after  Say,  France  neither  produced 
any  important  works  nor  possessed  a  school  of  economists  until 
about  1845,  though  French  idealistic  or  Utopian  Socialism  flour- 
ished. 

At  length,  near  the  middle  of  the  nineteenth  century,  there 
arose  a  revival  of  classicism,  marked  by  the  advent  of  such  men 
as  Dunoyer  and  Bastiat.  English  influence  was  decidedly  domi- 
nant, and  after  1860,  when  tariff  barriers  between  England  and 
France  were  largely  removed,  the  "Manchester  School"  carried 
the  day  with  a  high  hand.  The  commercial  agreement  just  al- 
luded to  was  largely  influenced  by  Cobden  and  the  French  econo- 
mist and  statesman,  Chevalier.  Individualistic  philosophy  and 
deductive  methods  reigned  supreme;  but,  as  observed  above, 
the  French  were  more  optimistic  than  the  English.  This  period, 
extending  down  through  1878,  has  been  called  one  of  traditional- 
ism. Bastiat  was  its  dominating  spirit. 

And,  as  Professor  Gide  has  pointed  out,  it  is  well  to  note  here 
that  the  French  school  of  liberalists  has  never  been  quite  iden- 
tical with  the  English  in  its  thought.  From  Mercier  de  la 
Riviere  to  Leroy-Beaulieu,  their  optimism  has  been  underlain 

1  See  B6chaux,  L'Ecole  Economique  Fran$ais  (1902) ;  Feilbogen,  "L'Evo- 
lution  des  Idees  Economiques  et  Sociales  en  France  depuis  1870,"  in  Rev. 
d'Hisl.  des  Doct.  Econ.,  1910,  pp.  1-41 ;  Gide's  articles  on  various  tenden- 
cies in  French  economics,  in  Econ.  Jr.,  June,  1907,  and  Pol.  Sci.  Quar., 
December,  1890,  and  Jahrbiichcr  (Schmoller),  1895;  De  Foville,  "The 
Economic  Movement  in  France,"  Quar.  Jr.  of  Econ.,  1890,  pp.  222-232; 
Bonar,  "  Studies  in  the  Origin  of  French  Economics,"  Quar.  Jr.  of  Econ., 
1890,  p.  100;  Palgrave's  Dictionary. 


5°4 


ECONOMIC  THOUGHT 


by  a  belief  in  the  beneficence  of  natural  law.  Their  optimism  has 
concerned  the  future,  that  is,  the  possible  future.  Evils  they 
recognize ;  but  these  arise,  they  believe,  from  failing  to  observe 
the  natural  law  in  not  leaving  industry  free  and  untrammeled. 

Some  reasons  for  this  optimistic  tendency  have  been  suggested 
in  connection  with  Bastiat's  thought.1  If  to  these  reasons  is 
added  the  fact  that  the  prevalence  of  small  farms  and  industrial 
enterprises  in  France  has  made  individualism  more  natural  and 
reasonable  than  elsewhere,  it  will  be  easier  to  understand  the 
tenacious  hold  of  an  old  school  in  the  land  of  the  Physiocrats. 

To  be  sure,  there  have  been  exceptions  among  French-writing 
economists;  Rossi  (1787-1848),  Sismondi,  Cherbuliez  (1797- 
1869),  and  Le  Play  were  such.  But  Rossi  was  an  Italian; 
Sismondi  and  Cherbuliez  were  Swiss ;  and,  if  Le  Play  was  in- 
ductive and  something  of  a  romanticist  reactionary,  still  he  does 
not  fall  in  the  enemy's  camp.  The  work  of  Cournot  and  Walras 
has  been  rejected  by  the  dominant  school,  the  latter  having  been 
virtually  an  exile  in  Switzerland. 

Such  was  the  situation  in  1878  when  the  new  movement  be- 
came effective  in  France,  as,  in  various  ways,  it  had  been  work- 
ing in  other  countries.  German  influence  had  been  virtually 
unfelt  till  about  this  time.  Then,  as  a  result  of  the  Franco- 
Prussian  war  (1870),  more  curiosity  concerning  German  thought 
sprang  up ;  Laveleye  made  the  so-sailed  "  Socialism  of  the  Chair  " 
known,  and  M.  Block  wrote  of  German  books  and  thought ;  while 
through  the  activity  of  Paul  Gide  the  historical  spirit  of  Savigny 
penetrated  the  teaching  of  Roman  law. 

Laveleye  (1822-1892)  was  a  Belgian  writer  and  professor  at 
Luttich.  His  works  deal  with  freedom  of  commerce,  money  and 
crises,  rural  economy  and  land  systems,  property  and  Socialism.2 
His  views  were  considerably  like  those  of  the  Katheder  Social- 
isten,  as  he  took  the  historical  standpoint  and  denied  the 

1  See  above,  p.  237. 

2  Chief  writings :  — 

De  la  propriety  et  de  ses  formes  primitives,  1874. 
Le  Socialisme  contemporain,  1881. 
Elements  d'Economie  politique,  1882. 


ECONOMIC  THOUGHT  IN  ENGLAND  AND  FRANCE   505 

existence  of  natural  laws.  He  will  be  remembered  for  his  argu- 
ments favoring  the  belief  in  an  original  community  of  property ; 
and,  as  to  economics  proper,  for  his  analysis  of  the  forces  deter- 
mining the  productivity  of  labor. 

The  war,  too,  brought  in  its  train  a  host  of  practical  problems, 
and  ultimately  a  veritable  regeneration  in  politics  and  economics. 

All  the  preceding  activity  would  probably  have  been  ineffec- 
tual, however,  if  the  monopoly  of  economic  instruction  which  was 
held  by  a  few  special  schools  in  Paris  and  the  College  de  France 
had  not  been  broken.1  In  1878  courses  were  instituted  in  the 
faculties  of  law  of  various  French  universities.  This  meant 
new  teachers,  of  whom  it  will  be  noted  that  as  teachers  of  law 
they  were  sympathetic  toward  state  interference,  and  that  they 
were  not  trained  in  the  doctrines  of  the  French  liberalists. 
These  new  men,  then,  were  inclined  to  follow  the  Historical 
School  and  to  advocate  government  intervention  for  social  re- 
form. Accordingly,  in  1879  came  Cauwes'  Cours  d'Economie 
Politique.  Gide  published  his  Principes  d'Economie  Politique 
in  1883.  Translations  of  Schmoller,  Wagner,  and  Brentano 
appeared ;  and  in  1887  the  Revue  d'Economie  Politique  was  es- 
tablished as  the  organ  of  the  new  tendencies.  Cauwes'  notable 
book  advocated  protectionism,  and  followed  German  ideas  to 
the  extent  of  placing  the  nation  and  the  actual  to  the  fore, 
abandoning  the  procedure  of  reasoning  from  absolute  universal 
laws.  In  this,  List  was  his  master. 

However,  the  Historical  School  proper  and  its  peculiar 
methods  seem  to  have  found  little  favor  among  the  French 
economists.  It  is  rather  to  an  increased  study  of  systems  other 
than  individualism  that  the  new  movement  has  led.  And  here 
the  difference  between  the  French  government  and  that  of  Ger- 
many has  made  a  difference  in  the  thought  of  the  two  nations. 
The  French  do  not  look  upon  the  state  with  the  eyes  of  Germans, 
but  regard  it  more  as  an  American  would.  Consequently  they 
have  sought  some  other  means  of  obtaining  the  goal  of  the  Ger- 

1  French  economic  writings  have  mostly  come  from  men  other  than  pro- 
fessional economists. 


506  ECONOMIC  THOUGHT 

man  State  Socialists  than  that  of  state  activity.  Indeed,  the 
great  mass  of  the  French  population  is  middle-class,  not  prole- 
tarian, in  its  interests,  and,  except  for  the  laborers  of  the 
manufacturing  centers,  does  not  respond  to  movements  for  ex- 
tending the  power  of  the  state  so  as  to  restrict  individualism 
greatly,  nor  to  anti-capitalistic  Socialism. 

Solidarite  is  a  term  much  used  in  France  and  championed  by 
such  men  as  C.  Gide  and  L.  Bourgeois.  The  distinguishing 
features  of  their  plan  seem  to  be  the  abolition  or  fundamental 
modification  of  the  wages  system  and  the  emphasis  given  to  coop- 
erative action  and  various  forms  of  voluntary  association.  It 
regards  as  the  foundation  of  solidarity  "  those  voluntary  con- 
tractual associations  and  institutions  that  are  created  deliber- 
ately with  a  view  to  creating  this  feeling."  l 

Solidarite  rejects  the  principle  of  competition,  and  so  stands 
opposed  to  Liberalism.  On  the  other  hand,  it  differs  from 
State  Socialism  in  opposing  government  action,  and  from  revo- 
lutionary Socialism  in  general  in  that  it  disbelieves  in  the  efficacy 
of  revolution  or  expropriation.  It  virtually  accepts,  however, 
the  program  of  the  so-called  Katheder  Sodalisten  as  laid  down 
by  Schmoller.2 

As  to  their  economics,  the  majority  of  the  professors  in  the  facul- 
ties of  law,  as  just  indicated,  differ  from  the  liberalists.  They  are 
what  M.  Gide  terms  "  interventionists."  They  devote  their 
energies  largely  to  the  study  of  current  problems,  notably  the 
labor  problem,  and  advocate  government  protection.  The  Inter- 
national Association  for  the  Legal  Protection  of  Labour  (Paris, 
1900)  draws  from  their  number,  M.  Cauwes  being  president  of 
the  French  section.  Gide  mentions  as  adherents  Jay,  Pic, 
Aftalon,  and  Bourguin,  the  last  named  being  the  author  of  Les 
Systemes  Socialistes  et  V  Evolution  Economique  (1904).  In  this 
book  the  author,  after  critically  examining  the  various  plans  for 

1  Gide,  Principles  of  Pol.  Econ.,  8th  ed.,  Amer.  trans.,  p.  38. 

2  For  a  statement  and  discussion  of  the  program  and  ideas  see  Gide, 
Essai  d'une  Philosophic*  de  la  Solidarite  (1902)  and  Applications  Sociales 
de  la  Solidarite  (1907).     See  also  Bourgeois,  La  Solidarite  (1894),  Bougl6, 
Le  Solidarisme  (1907) ;  Gide-Rist,  Histoire  des  Doctrines  Economiques. 


ECONOMIC  THOUGHT  IN  ENGLAND  AND  FRANCE        507 

solving  the  social  problem,  decides  adversely  to  Socialism.  The 
only  recent  product  of  the  professorial  group  in  pure  theory, 
Landry's  L'lnteret  du  Capital  (1904),  appears  to  have  come 
through  the  faculty  of  science.1 

France  also  has  her  Christian  Socialism  —  or  perhaps  more 
properly  Social  Christianity  —  with  both  the  Catholic  and 
Protestant  branches.  Indeed,  this  tendency  seems  to  com- 
mand more  respect  in  France  and  Belgium  than  elsewhere. 

Meanwhile  the  French  classical  economics  is  far  from  van- 
quished, for  the  Liberalists  (economic  conservatives)  are  still 
found  in  certain  universities.2  Moreover,  it  reigns  in  the  acad- 
emies, and  speaks  through  such  journals  as  Le  Temps,  Les 
Debats;  Revue  des  deux  Mondes,  and  the  venerable  Journal  des 

r  r 

Economistes.  So,  too,  with  the  Economiste  Franqais  and  the 
Monde  Economique.  Among  its  adherents  are  numbered  Cour- 
celle-Seneuil  (1813-1892),  Leon  Say,  Block,  Molinari,  Passy, 
Levasseur,  Baudrillart,  Juglar,  Colson,  Schatz,  Stourm,  Leroy- 
Beaulieu,  YvesGuyot,  De  Foville,  Neymarck,  Cheysson  (d.  1910), 
and  Beuregard. 

This  list  may  be  divided  into  two  groups.  One,  the  older  in- 
dividualists, may  be  represented  by  Frederic  Passy  and  Gustave 
de  Molinari.  Passy  (b.  1822)  is  an  idealist,  and  strongly  empha- 
sizes property  rights.  He  also  considers  ethical  ideas,  and  is 
widely  known  for  his  activity  in  promoting  international  peace. 
Molinari  (b.  1819)  is  an  utopist,  and  individualism  is  the  keynote 
of  his  thought.  He  appears  to  simplify  the  complexities  of  society 
unduly  when  he  virtually  reduces  all  activities  to  the  sway  of  three 
laws :  self-interest,  competition,  and  value.  He  has  long  been 
the  editor  of  the  Journal  des  Economistes.3  Emile  Levasseur 
may  also  be  classed  here,  though  his  realism  and  the  wonderful 
grasp  of  facts  shown  in  his  numerous  writings  somewhat  dif- 

1  Professor  Landry's  Manuel  <T Economique  (1908)  is  one  of   the   best 
economic  manuals  France  has  produced. 

2  E.g.  Villey  at  Caen,  Beuregard  at  Paris. 

3  Some  of  Molinari's  works  are  :   Cours  usuel  d' Economic  politique,  1863 ; 
Notions  fondamentales  d'Econ.  pol.,  1891 ;  Esquisse  de  V organisation  politique 
et  economique  de  la  societe  future,  1899. 


508  ECONOMIC  THOUGHT 

ferentiate  him.  He  was  influenced  by  Roscher,  and  perhaps  his 
best  work  has  been  done  in  the  fields  of  statistics  and  geography. 
He  is  an  optimist,  though  his  latest  work  may  show  some  signs 
of  wavering.  The  younger  group  of  individualists  would  include 
Leroy-Beaulieu,  Yves  Gyot,  De  Foville,  and  Neymarck,  as  its 
chief  representatives.  These  men  are  statesmen  and  statisticians. 
Though  not  without  differences  of  opinion  among  themselves, 
all  these  men  are  united  in  their  hostility  to  Socialism,  protec- 
tionism, and  state  intervention.  The  chief  development  in  their 
point  of  view  has  been  a  more  practical  tendency.  With  the  ex- 
ception of  Molinari,  the  present-day  members  of  the  Institute 
do  not  defend  Liberalism  on  a  priori  grounds,  and  their  work  is 
largely  concrete  and  descriptive. 

Among  the  most  important  recent  products  of  the  thought 
of  this  group  is  M.  Colson's  Cours  d'Economie  Politique 
(1901-  ).  It  is  one  of  the  few  French  works  to  expound 
the  doctrines  of  the  mathematical  school.  M.  Colson  is  an 
engineer,  and  is  well-known  as  the  author  of  a  valuable  treatise 
on  transportation  (Transports  et  Tarifs). 

It  remains  to  characterize  briefly  two  French  writers  who 
more  than  any  others  of  the  second  half  of  the  century  —  Cour- 
not,  Bastiat,  and  Walras  excepted  —  stand  forth  as  of  original 
genius.  They  are  Le  Play  and  the  Belgian,  Quetelet.  Neither 
advanced  pure  economics,  but  both  made  contributions  to  the 
methods  and  data  of  the  science,  for  which  they  are  justly  famed. 

Le  Play  *  (1806-1882),  in  fact,  was  the  founder  of  what  may  be 

1  Chief  writings :  — 

Les  ouvriers  Europeens.  Etudes  sur  les  travaux,  la  vie  domestique  et  la 
condition  morale  des  populations  ouvrieres  de  I'Europe,  precedes  d'un  expose 
de  la  methode  d 'observation,  1855. 

Les  ouvriers  des  deux  Mondes,  1857-1863. 

La  reforme  sociale  en  France,  deduite  de  I'observation  comparee  des  peuples 
Europeens,  1864. 

L' organisation  du  travail,  1870 :  Eng.  trans.,  Philadelphia,  1872. 

Le  prix  social  selon  la  pratique  des  autorites  soumises  au  decalogue, 
1871. 

L'organisation  de  la  famille  selon  le  vrai  modele  signals  par  I'histoire  de 
toutes  les  races  et  de  tous  les  temps,  1871. 

La  constitution  essentielle  de  Vhumanite,  1881. 


ECONOMIC  THOUGHT  IN  ENGLAND   AND   FRANCE        509 

called  a  school  of  thought  which  is  active  to  this  day.  He  was  a 
Catholic,  and  a  member  of  the  conservative  school.  His  work 
lay  largely  in  the  field  of  sociology  and  social  reform,  the  investiga- 
tion of  wage-earners'  family  budgets  constituting  his  chief  scien- 
tific activity.  These  investigations  he  made  in  person  during 
the  course  of  extended  travel.  Some  typical  conclusions  were  that 
the  importance  of  the  family  as  a  social  unit  should  be  increased ; 
there  should  be  greater  freedom  of  bequest ;  and  the  criterion  of 
the  duty  of  the  employer  should  be  extended  beyond  the  mere 
cash  nexus.  His  school  seeks  social  harmony  through  increased 
moral  responsibility  on  the  part  of  the  father  in  the  family,  the 
employer  in  the  factory,  and  the  church  in  the  state.  In  1856 
Le  Play  founded  an  international  society  for  study  along  the 
lines  pursued  by  himself ;  and  in  France  the  Union  de  la  Paix 
Sociale  (Union  of  Social  Peace),  composed  of  local  clubs  for  apply- 
ing his  methods,  originated  in  1872.  Both  have  been  active. 
It  is  upon  these  lines  that  Engel  worked  in  formulating  the  law 
found  in  most  American  text-books  of  economics. 

Quetelet x  (1796-1874)  was  a  Belgian  statistician,  notable  as 
the  founder  of  social  statistics.  Primarily  a  mathematician  and 
social  scientist,  he  sought  the  laws  of  group  phenomena.  He 
did  not  deny  the  freedom  of  the  will,  though  he  gave  scant 
recognition  to  the  individual ;  but  he  believed  that  laws  of  natu- 
ral necessity  underlie  many  social  phenomena.  His  mortality 
tables,  in  which  he  separates  urban  and  rural  population,  are 
notable  achievements. 

When  one  essays  to  summarize  the  general  situation  in  France, 
the  following  conclusions  appear  just.  Among  the  most  no- 
table facts  is  the  paucity  of  pure  economic  thought.  Most  of 

1  Chief  writings :  — 

Instructions  sur  la  probability,  1828;  English  trans.,  1839. 

Sur  la  possibility  de  mesurer  I'influence  des  causes  qui  modifient  les  eli- 
ments  sociaux,  1832;  Eng.  trans.,  Tracts  on  Mental  and  Moral  Statistics, 
Series  IV,  Vol.  5,  London. 

Sur  I'homme,  physique  sociale,  1835. 

Lettres  d  S.  A.  R.  le  due,  regnant  de  Saxe-Coburg  et  Gotha  sur  la  tkeorie 
des  probabilites,  1846;  Eng.  trans.,  London,  1849. 

Du  Systeme  Sociale  et  des  lois  qui  le  regissent,  1848. 


ECONOMIC  THOUGHT 

the  energy  of  French  economists  is  bent  upon  solving  social 
problems. 

A  concomitant  fact  is  the  lack  of  a  hearing  for  the  Austrian 
school  and  the  mathematical-subjective  economics. 

Nor,  on  the  other  hand,  has  the  historical  method  found  much 
favor. 

The  dominant  group  of  economists,  strong  in  their  castle-like 
control  of  leading  societies  and  journals,  still  stands  for  a  belief  in 
natural  laws,  which  leads  them  to  optimistic  conclusions.  These 
"  liberalists  "  are  the  French  representatives  of  individualism 
and  the  Classical  School. 

Opposed  to  them,  stands  a  group  consisting  chiefly  of  teachers 
in  the  law  faculties  who  represent  ideas  akin  to  the  progressive 
economists  of  Germany  and  the  United  States,  —  the  "  inter- 
ventionists." 

Between  the  two  a  small  but  active  group  of  "  solidarists  " 
exists,  seeking  a  remedy  for  social  ills  in  perfected  voluntary  as- 
sociation. 

Then  there  are  all  varieties  of  Socialism,  though,  as  elsewhere, 
it  is  not  represented  by  any  important  economists. 

Finally,  the  peculiar  field  developed  by  Le  Play  has  been  so 
attractive  and  held  out  such  promise  that  it  has  given  rise  to  a 
fairly  distinct  group. 

French  economics  cannot  be  passed  over  with  the  statement 
that  it  is  a  mere  modification  of  the  English  school.  It  is  too 
diversified,  too  concrete  or  realistic,  too  optimistic  for  that. 
But  there  is  still  some  justice  in  the  criticism  that  some  of  the 
liberalists,  in  a  conservative  and  apologetic  spirit,  have  accepted 
optimism  —  individualism,  laisser  faire  —  a  priori  father  than  a 
posteriori.  Moreover,  it  is  true  that  while  in  French  works  one 
may  find  excellent  studies  in  the  history  of  economic  thought,  in 
the  labor  problem,  transportation,  and  finance,  relatively  little 
has  of  late  years  been  contributed  to  general  or  pure  economics. 


CHAPTER  XXXII 

RECENT  ECONOMIC  THOUGHT  IN  THE  UNITED   STATES 
AND    ITS    BACKGROUND 

AMERICAN  economic  thought  has  already  been  touched  upon, 
and  Franklin,  Hamilton,  Raymond,  and  Carey  have  been  more  or 
less  fully  discussed.  It  did  not  seem  advisable,  however,  to  in- 
terrupt the  discussion  of  the  general  stream  of  thought  by  treating 
local  forces  and  characteristics.  The  object  of  the  following  chap- 
ter is  to  set  forth  some  of  the  more  peculiar  features  of  American 
economic  theory  and  its  development,  bringing  out,  as  it  were, 
the  local  color. 

I.  The  Background.  —  Almost  from  the  beginning  the 
peculiar  environmental  conditions  met  with  in  America 
have  given  a  characteristic  set  of  tendencies  to  American 
economics.1  In  the  first  place,  the  point  of  view  is  gener- 
ally optimistic.  The  country  is  young,  and  its  resources 
are  boundless.  It  is  far  removed  from  the  pessimism  of  a 
"stationary  state,"  and  has  been,  indeed,  in  the  "advancing 
state  "  of  the  old  classical  economists.  In  accordance  with  this 
general  tendency,  from  early  times  to  Professor  Patten,  there  has 
been  a  correlated  tendency  to  deny  the  validity  of  the  classical 
law  of  diminishing  returns,  and  yet  another  to  attack  the  Mal- 
thusian  doctrine  of  population.2  Both  doctrines,  as  commonly 
understood,  seemed  to  run  counter  to  the  facts  in  this  new  land. 

Moreover,  the  progressive  state  of  the  country,  with  its  attend- 
ant speculation  and  fluctuation  in  prices  may  be  taken  partly  to 

1  Cf.  Sherwood,  Tendencies  in  American  Economic  Thought,  Johns  Hopkins 
University   Studies,    1897;    and    Leslie,    Essays    in    Political   and   Moral 
Philosophy,  p.  126,  1880. 

2  Carey,  Thompson,  Peshine  Smith,  Bowen,  A.  Walker,  Perry.     More 
recently  this  last  tendency  has  rather  shaded  into  a  mere  neglect  or  a  mini- 
mization of  the  importance  of  the  doctrine. 

5" 


512  ECONOMIC  THOUGHT 

explain  the  fact  that  an  assumed  general  equality  of  wages  and 
profits  is  rarely  made  an  important  premise  in  the  reasoning  of 
American  economists.  The  existence  of  wide  differences  in 
local  rates  of  wages  and  profits  within  their  nation's  vast  area 
would  work  toward  the  same  result.1 

Again  the  fact  that  farms  have  been  "  carved  out "  of  the  wilder- 
ness before  our  very  eyes  has  doubtless  suggested  the  question, 
Is  land  not  capital?  Is  it  not  "produced"  ?  Furthermore,  the 
abundance  of  land  has,  in  connection  with  a  democratic  people, 
begotten  a  system  of  land  ownership  which  has  made  the  distinc- 
tion between  land  and  capital  less  obvious  than  it  was  in  the  home 
of  classical  economists.  Its  ownership  has  been  more  mobile; 
its  tenure  and  value  more  closely  related  by  competition  and  the 
market.  Accordingly,  Carey  held  views  at  variance  with  those 
of  the  classical  economists  on  this  point,  and  recently  a  number 
of  American  economists  have  shown  a  strong  leaning  in  a  similar 
direction. 

Part  and  parcel  of  the  same  tendency  is  the  further  fact  that 
Americans  have  been  forward  in  applying  the  differential  idea 
to  labor  and  capital  as  well  as  land. 

The  scarcity  of  labor  and  capital  which  has  existed  well  down  to 
the  present  time  has  also  found  its  expression  in  certain  theoreti- 
cal peculiarities,  in  addition  to  furthering  the  one  just  noted.  For 
one  thing,  the  necessity  for  and  importance  of  the  management 
factor  have  been  accentuated.  Invention,  too,  has  been  stimu- 
lated, and  its  importance  emphasized.  This  has  fostered  a  point 
of  view  in  which  change  and  progress  are  regarded  as  normal. 

But  most  interesting  of  all  is  the  suggestion  that  the  wide- 
spread acceptance  of  the  marginal-productivity  theory  of  distri- 
bution may  be  an  offspring  of  a  national  psychology  engendered 
by  these  conditions.  Where  labor,  for  example,  is  scarce  and 
relatively  independent,  the  wages-fund  doctrine  would  hardly  be 
suggested,  while  it  would  be  easy  to  conceive  of  a  relationship 
between  productivity  and  income.  Some  of  the  assumptions  in 
Professor  Clark's  theorizing  have  been  actualities  in  America. 
There  has  been  a  great  deal  of  free,  no-rent  land,  upon  which  the 
1  See  Leslie,  Essays  in  Political  and  Moral  Philosophy,  pp.  137  f. 


ECONOMIC  THOUGHT  IN  THE  UNITED   STATES        513 

settler  put  his  labor.  If  he  could  get  it,  hired  labor  was  paid  all 
that  it  was  "  worth,"  and  the  subsistence  wage  has  been  far  less 
common  in  America  than  in  Europe.  Labor  was  the  factor  which 
had  to  be  economized,  rather  than  land,  and  its  productivity  was 
scrutinized.  The  result  was  a  productivity  theory  of  wages; 
and  the  application  of  the  differential  idea,  or  perhaps  an  idea 
unconsciously  caught  from  one  of  the  numerous  early  writers 
who  suggested  the  marginal  concept  for  determining  value,  com- 
pleted the  scheme.  But  oftentimes  in  the  earlier  days  capital 
was  the  scarcest  of  all,  when  like  results  might  be  expected  in 
the  theory  of  interest. 

Nor  is  it  unlikely  that  the  readiness  with  which  certain  Ameri- 
can theorists  take  to  the  idea  of  capital  as  a  mobile  fund,  criticizing 
the  idea  of  capital  as  the  aggregate  of  capital  goods,  has  been 
furthered  by  the  prevalence  of  corporations  and  speculation  and 
the  relative  mobility  of  investment,  taken  together  with  the 
preceding  conditions. 

Finally,  America's  relative  isolation  has  made  her  a  stanch 
protectionist  country.  Located  remote  from  the  old  centers  of 
arts  and  industry,  and  at  a  time  when  the  products  of  manufac- 
ture were  of  great  importance,  the  "  American  system,"  accord- 
ing to  which  ocean  freight  charges  were  to  be  saved  and  home 
markets  developed,  was  a  natural  consequence.  America,  di- 
rectly, and  to  some  extent  indirectly  through  List,  has  been  the 
center  of  the  modern  protectionist  idea. 

Of  course  these  "  tendencies  "  do  not  find  equal  expression  in 
all  American  economists,  and  there  have  always  been  some  who 
have  upheld  the  classical  doctrines ;  but  the  most  characteristic 
ones  will  always  be  found  to  illustrate  the  reality  of  them  suffi- 
ciently well. 

This  background  will  afford  some  preparation  for  a  brief  survey 
of  a  few  of  the  recent  economic  thinkers  and  their  thought. 

II.  History.  —  Three  great  periods  in  the  history  of  eco- 
nomic thought  in  the  United  States  are  clearly  marked.  In 
the  early  days  of  the  republic  a  protectionist  optimistic 
tendency  was  dominant,  and  the  influence  of  a  new  environ- 
ment appeared  in  a  frequent  opposition  to  the  teachings  of 


5 14  ECONOMIC  THOUGHT 

Ricardo  and  Malthus.  Henry  Carey  was  the  most  prominent 
and  original  thinker  of  the  time.  In  politics  the  so-called 
"American  System  "  was  a  practical  expression  of  the  dominant 
idea. 

All  the  time,  however,  English  economics  formed  the  basis  for 
such  small  teaching  as  there  was.  Men  had  little  interest  in 
Political  Economy. 

But  in  the  generation  following  Civil  War  times,  there  came 
a  rush  of  great  economic  problems,  —  notably  the  tariff  and  mone- 
tary matters,  —  a  considerable  growth  of  interest  in  economics, 
and  with  these,  a  dominance  of  the  English  classical  theories. 
Francis  Wayland's  Elements  of  Political  Economy  (1837),  dating 
from  the  earlier  period,  was  much  used;  and  the  writings  of 
Amasa  Walker,  John  Bascom,  and  A.  L.  Perry 1  were  products  of 
the  same  time. 

Moreover,  an  American  translation  of  J.  B.  Say's  Train 
d 'Economic  Politique  (1803)  appeared  in  1821,  and  went  through 
many  editions.2  This  work  was  widely  used  as  a  text  before  the 
Civil  War,  and  even  down  to  the  last  generation.  It  exerted  a 
deep  influence  upon  American  economic  thought. 

This  period  maybe  said  to  reach  a  climax  with  General  Francis 
A.  Walker,  son  of  Amasa,  though  his  work  extended  well  into  the 
one  which  followed.  Walker's  brilliant  attack  upon  the  wages- 
fund  doctrine  has  already  been  noted,  as  well  as  his  influence 
upon  English  thought.  He  is  perhaps  equally  well  known  for  his 
separation  of  the  entrepreneur  function,  thus  emphasizing  it  and 
dividing  the  "profits"  of  Smith  and  Ricardo  into  interest  and 
entrepreneur's  profits.  In  this,  he  was  no  doubt  guided  by  the 
great  development  of  business  organization  and  management  in 
America  —  a  fact  which  must  have  been  patent  to  him  as  direc- 
tor of  the  Federal  censuses  of  1870  and  1880. 

1  Perry's  Elements  (1866),  while  advocating  free  trade  and  holding  to  a 
law  of  diminishing  returns,  is  more  like  the  writings  of  Carey  and  Bastiat 
as  to  rent  and  the  place  of  land  as  a  factor. 

2  English  translation  by  Prinsep,  London,  1821,  from  the  fourth  edition 
of  Say's  work.     The  sixth  American  edition  (Philadelphia,  1836)  was  cor- 
rected according  to  the  fifth  edition  of  the  original,  by  C.  C.  Biddle. 


ECONOMIC  THOUGHT  IN  THE  UNITED   STATES        515 

With  the  exception  of  General  Walker,  the  American  economists 
of  these  earlier  days  were  astonishingly  narrow  and  absolute  in 
their  doctrines.1  It  was  believed  that  almost  any  one  could  teach 
political  economy,  no  special  training  being  necessary.  Amasa 
Walker,  even,  could  write :  "  Although  desirable  that  the  instruc- 
tor should  be  familiar  with  the  subject  himself,  it  is  by  no  means 
indispensable."  A  well-arranged  text-book,  together  with  some 
effort  on  the  part  of  the  teacher  and  attention  on  the  part  of  the 
pupil,  would  insure  results. 

As  a  result,  though  there  was  a  growing  interest  in  economic 
problems,  the  study  of  economics  was  generally  regarded  as  dull 
and  fruitless,  if  not  with  positive  aversion.  Activity  was  chiefly 
confined  to  the  more  practical  and  particular  topics,  and  most  of 
the  best  work  appeared  in  periodicals.  Cliffe  Leslie  sums  up  the 
situation  as  follows :  — 

"  Speaking  generally,  however,  the  men  best  qualified  to  stand  in 
the  front  rank  of  American  Economists  are  not  the  authors  of  systems 
or  general  theories,  or  text-books  of  principles,  but  writers  on  special 
subjects  —  David  Wells,  William  M.  Grosvenor,  Albert  S.  Bolles, 
Francis  A.  Walker,  Edward  Atkinson,  William  G.  Sumner,  C.  F. 
Dunbar,  and  Simon  Newcomb.  Only  since  the  Civil  War  has 
America  begun  seriously  to  apply  its  mind  to  economic  questions, 
and  the  number  of  powerful  intellects  it  has  brought  to  bear  on  them 
is  a  remarkable  phenomenon  in  the  history  of  philosophy.  Many  of 
the  best  economic  essays  the  last  decade  has  produced  will  be  found 
in  the  pages  of  American  periodicals.  ...  In  the  translation  of 
Roscher  and  Blanqui,  work  has  been  done  by  America  which  England 
ought  not  to  have  left  it  to  do.  Two  considerable  contributions  to 
economic  history  were  made  last  year  in  the  '  Industrial  History  of 
the  United  States,'  and  the  '  Financial  History  of  the  United  States, 
1774-1789,'  by  Mr.  Bolles.  In  the  perfection  of  its  economic  sta- 
tistics America  leaves  England  behind." 2 

1  Francis  Walker  in  1891  wrote  that  American  economics  had  been  more 
arbitrary  than  the  English  even,  laisser-faire  and  assumptions  based  on  the 
"economic  man"  being  pushed  to  the  extreme. 

2  "Political  Economy  in  the  United  States,"  Fortnightly  Review,  1880; 
Essays,  p.  154. 


51 6  ECONOMIC  THOUGHT 

It  was  in  this  second  period  that  one  finds  the  first  important 
academic  recognition  of  economics.  Professory  Perry  in  1865 
held  the  title  of  Professor  of  Political  Economy  at  Williams  Col- 
lege; and  in  1871  Professor  Dunbar  took  a  chair  of  Political 
Economy  at  Harvard,  where  Professor  Bowen  had  been  serving  as 
Professor  of  Natural  Religion,  Moral  Philosophy,  and  Civil  Pol- 
ity. Sumner  and  Walker  soon  took  up  work  at  Yale. 

About  the  year  1885,  however,  the  beginning  of  a  new  era  in 
American  economic  thought  appeared.  Among  the  more  general 
grounds  for  the  change  were  great  industrial  developments  like 
the  rise  of  railway  and  corporation  problems,  and  the  very  nar- 
rowness and  dogmatism  of  the  current  economics,  which  invited 
reaction.  More  particularly,  there  was  the  ferment  of  Henry 
George's  propaganda,  and  the  stimulus  of  Walker's  bold  generali- 
zations. George's  Progress  and  Poverty,  with  its  plea  for  a  single 
tax  on  land,  appeared  in  1879,  and  aroused  an  interest  and  pro- 
voked such  debate  that  we  of  a  later  generation  still  hear  its 
echoes,  while  hardly  realizing  its  intensity.  Finally,  there  came 
two  thought  forces  from  abroad :  the  widening  ripples  from  the 
German  Historical  School,  reenforced  by  Ingram's  address  on 
The  Present  Position  and  Prospects  of  Political  Economy  (1878), 
reached  America  in  the  early  eighties ;  shortly  thereafter  the  doc- 
trines of  the  Austrian  School  became  effective  there.  At  about 
the  same  time,  as  will  appear  in  a  moment,  Professor  Clark  was 
developing  similar  ideas. 

It  was  in  the  fall  of  1885  that  the  Amerian  Economic  Associa- 
tion, so  potent  in  the  development  of  economic  thought,  was 
founded,  one  avowed  object  of  its  founders  being  to  replace  the 
abstract  speculative  economics  of  the  day  with  a  body  of  thought 
based  upon  historical  and  statistical  investigation.  The  time 
was  ripe  for  such  an  association.  Indeed,  it  came  hard  upon  the 
heels  of  an  unsuccessful  project,  the  "  Society  for  the  Study  of 
National  Economy."  l  This  projected  society,  whose  principles 
were  formulated  by  E.  J.  James  and  S.  N.  Patten,  had  proposed 

1  For  a  more  complete  account  of  the  origin  and  work  of  the  American 
Economic  Association  see  Ely,  Amer.  Econ.  Assoc.  Quar.,  XI,  pp.  46  ff. 


ECONOMIC  THOUGHT  IN  THE  UNITED  STATES        517 

to  stand  for  an  increase  in  the  functions  of  the  state,  emphasizing 
labor  legislation,  railway  regulation,  and  the  conservation  of  natu- 
ral resources;  and,  as  illustrating  the  new  spirit,  the  following 
statement  of  one  of  its  "  ends  "  is  of  interest.  It  was  proposed : 
"  To  combat  the  widespread  view  that  our  economic  problems 
will  solve  themselves  and  that  our  laws  and  institutions  which  at 
present  favor  individual  instead  of  collective  action,  can  promote 
the  best  utilization  of  our  national  resources  and  secure  to  each 
individual  the  highest  development  of  all  his  faculties."  The 
program  proposed  was  too  detailed  to  secure  the  adherence  of 
enough  economists  for  the  organization  of  the  society. 

Perhaps  those  most  active  in  originating  the  American  Eco- 
nomic Association  were  Professors  Ely,  H.  B.  Adams,1  James,  and 
Seligman.2  The  objects  of  the  association  were,  on  the  whole, 
similar  to  those  of  the  preceding  society,  being  (i)  the  encourage- 
ment of  economic  research,  (2)  the  publication  of  economic  mono- 
graphs, (3)  the  encouragement  of  perfect  freedom  in  economic 
discussion,  and  (4)  the  establishment  of  a  bureau  of  information 
to  aid  members  in  their  studies.  Its  statement  of  principles  dif- 
fered in  the  direction  of  less  radicalism  on  the  score  of  govern- 
mental interference  and  of  an  emphasis  of  historical  and  statisti- 
cal methods.  These  principles  were  the  result  of  a  conservative 
modification  of  a  draft  prepared  by  Professor  R.  T.  Ely.  They 
ran  as  follows :  — 

"  i.  We  regard  the  State  as  an  agency  whose  positive  assistance  is 
one  of  the  indispensable  conditions  of  human  progress. 

"  2.  We  believe  that  political  economy  as  a  science  is  still  in  an 
early  stage  of  its  development.  While  we  appreciate  the  work  of 
former  economists,  we  look  not  so  much  to  speculation  as  to  the  his- 

1  H.  B.  Adams  was  an  historian,  but  his  influence  and  encouragement 
was  a  valuable  aid  to  the  formation  of  the  Association.    The  American  His- 
torical Association  had  been  formed  in  1884. 

2  At  the  first  meeting  called  to  discuss  the  formation  the  following  among 
others  were  present :  C.  K.  Adams,  H.  B.  Adams,  H.  C.  Adams,  E.  B.  An- 
drews, E.  W.  Bemis,  C.  Bowen,  J.  B.  Clark,  Miss  Katherine  Coman,  V.  B. 
Denslow,  D.  R.  Dewey,  S.  W.  Dike,  R.  T.  Ely,  Washington  Gladden,  E.  J. 
James,  Alexander  Johnston,  F.  B.  Sanborn,  Eugene  Schuyler,  E.  R.  A. 
Seligman,  Herbert  Tuttle. 


518  ECONOMIC  THOUGHT 

torical  and  statistical  study  of  actual  conditions  of  economic  life  for 
the  satisfactory  accomplishment  of  that  development. 

"3.  We  hold  that  the  conflict  of  labor  and  capital  has  brought 
into  prominence  a  vast  number  of  social  problems,  whose  solution  re- 
quires the  united  efforts,  each  in  its  own  sphere,  of  the  church,  of  the 
state,  and  of  science. 

"4.  In  the  study  of  the  industrial  and  commercial  policy  of  gov- 
ernments we  take  no  partisan  attitude.  We  believe  in  a  progressive 
development  of  economic  conditions,  which  must  be  met  by  a  corre- 
sponding development  of  legislative  policy." 

It  is  to  be  observed  that  this  statement  of  principles  was  not 
regarded  as  a  creed.  It  was  apparently  never  signed.  Yet  even 
so,  it  was  the  object  of  criticism,  and  was  unanimously  abolished 
within  three  years.  Its  function  was  to  serve  as  a  rallying  point 
for  those  economists  who  were  the  progressives  of  the  time,  thus 
insuring  a  certain  likemindedness  in  membership  and  leadership, 
desirable  under  such  circumstances. 

Indeed,  ample  evidence  exists  that  the  above  principles  were 
hailed  with  no  small  enthusiasm.  As  already  noted,  the  period 
was  one  of  transition  in  social  thought  and  in  economic  facts.  In 
the  face  of  such  great  questions  as  the  growing  labor  problem, 
railway  discrimination,  and  money  difficulties,  all  accentuated 
by  the  crises  of  1873  and  1884,  the  old  policy  of  laisser  faire  was 
proving  inadequate,  and  the  wave  of  nationalism  which  came  with 
the  Civil  War  no  doubt  made  the  decline  of  that  policy  easier.1 
At  the  same  time  the  narrow  abstractions  of  the  economics  then 
taught  grew  more  and  more  irksome. 

This  is  the  point  at  which  reference  should  be  made  to  German 
influence.  The  men  who  founded  the  Association  had  studied  in 
Germany  and  had  been  deeply  affected  by  the  breadth  and  cath- 
olicity of  economic  studies  there.  They  felt  the  lack  of  freedom 
in  American  economic  thought.  More  concretely,  the  idea  of 
relativity  was  grasped,  and  at  the  same  time  the  economic  sig- 

1  For  an  illustration  of  the  effects  of  the  Civil  War  and  of  the  growth  of 
government  intervention  in  one  field  of  economic  activity,  see  Haney,  Con- 
gressional History  of  Railways,  Vol.  II,  pp.  157,  161  f.,  163,  and  Chap.  XXI. 
(Madison,  Wisconsin,  1910.) 


ECONOMIC  THOUGHT  IN  THE  UNITED   STATES        519 

nificance  of  ethical  and  political  forces  was  realized.  Thus,  while 
the  American  Economic  Association  was  of  domestic  origin  and 
stood  for  American  ideas,  it  is  to  be  gratefully  acknowledged  that 
German  thought  was  instrumental  in  hastening  and  guiding  its 
birth.  No  doubt,  too,  the  Verein  fur  Sozial  Politik  1  served  to 
some  extent  as  a  model. 

The  Association  at  once  became  the  center  of  new  thought 
forces,  gathering  them  together  and  giving  them  strength  through 
the  mutual  support  and  interchange  of  ideas  which  it  encouraged. 
It  also  served  to  stimulate  further  development.  Its  early  mono- 
graphs set  forth  ideas  which  later  developed  into  well-rounded 
theories  expounded  in  books,  —  e.g.  Clark's  Capital  and  its 
Earning  in  Volume  III.  That  a  considerable  part  of  these  mono- 
graphs illustrate  the  historical  idea,  is  natural.  Nor  is  the 
practical  influence  of  the  Association  to  be  overlooked.  It  has 
been  a  real  force,  through  its  membership  and  the  reports  of  its 
committees,  for  improving  the  federal  census,  and  the  regulation 
of  monetary  matters,  the  "  trusts,"  and  the  railways. 

As  further  evidence  of  contemporaneous  development  in  the 
world  of  economic  thought,  it  is  only  necessary  to  recall  that  in 
1886  the  Political  Science  Quarterly  (Columbia)  and  the  Quarterly 
Journal  of  Economics  (Harvard)  were  established,  followed  in 
1890  by  the  Annals  of  the  American  Academy  of  Political  and 
Social  Science  (Pennsylvania)  and  the  Journal  of  Political  Econ- 
omy (Chicago),  and  by  the  Yale  Review  (Yale)  in  1892.  Clark's 
Philosophy  of  Wealth  appeared  in  1885,  Laughlin's  Elements  of 
Political  Economy  in  1887,  and  Ely's  Introduction  to  Political 
Economy  in  1889. 

At  about  this  time  General  Walker  spoke  of  an  intense  interest 
in  industrial  conditions  and  in  economics.  And  he  was  inclined 
to  complain  of  a  spirit  of  radicalism,  a  contempt  for  authority 
and  dissatisfaction  with  the  existing  order.2  From  then  on  down 
to  the  present  day,  an  eager,  restless  inquiry,  an  extension  of 

1  See  above,  p.  416. 

2  Amer.  Econ.  Assoc.  Pubs.,  1891.     For  a  statement  and  criticism  of  the 
situation  which  deserves  to  become  a  classic,  see  Dunbar's  article  on  "The 
Reaction  in  Political  Economy,"  Quar.  Jr.  Econ.,  I,  1-27  (1886). 


520 


ECONOMIC  THOUGHT 


general  and  technical  instruction  along  economic  lines,  have 
prevailed  in  the  United  States,  and  are  the  subject  of  frequent 
comment  by  foreign  economists. 

III.  Present  Conditions.  —  Perhaps  to  some  extent  on  ac- 
count of  the  comprehensiveness  of  the  American  Economic 
Association,  it  seems  that  no  such  division  into  important  schools 
exists  as,  for  instance,  is  the  case  in  Germany.  Or  the  fact 
may  be  due  in  part  to  the  later  development  of  activity  in  eco- 
nomic thought.  Coming  after  the  reaction  against  the  extremes 
of  the  Historical  School  had  set  in,  there  was  less  occasion  for 
the  "  schools  "  involved.  Moreover,  the  absence  of  so  wide- 
spread and  acute  a  condition  of  class  antagonism  and  the  evils 
accompanying  it  may  explain  in  part  the  slight  importance  of 
Socialism  to  date.  It  is  characteristic  of  American  economics 
that  relatively  little  difference  of  opinion  is  found  as  to  the  tariff 
and  government  control  in  general,  neither  being  entirely  con- 
demned. On  the  whole,  there  are  but  two  great  groups,  with 
so  many  variations  within  both,  and  so  shading  into  one  another, 
that  they  cannot  be  called  schools.  One  holds  to  a  large  part 
of  the  teaching  of  Mill ;  the  other  follows  the  Austrian  school  and 
Professor  Clark.  Within  the  latter,  a  smaller  third  group  has 
Professor  S.  N.  Patten  as  its  center.  This  is  sometimes  called  the 
Pennsylvania  group.  Accordingly,  one  finds,  on  the  surface  at 
least,  wide  difference  in  the  importance  attributed  to  cost  in  value 
determination,  in  the  theory  of  interest,  and  in  the  treatment  of 
land  and  the  return  from  land.  To  mention  but  a  few  names : 
Professors  Clark,  Fetter,  Fisher,  and  Patten  are  inclined  to  em- 
phasize the  subjective  point  of  view  and  the  utility  side  of  mar- 
ginal utility,  and  to  deny  the  significance  of  the  classical  rent 
doctrine ;  Professors  Bullock,  Carver,  Ely,  Hollander,  Laughlin, 
and  Taussig  would  lay  more  emphasis  upon  the  objective  and 
upon  costs,  and  hold  to  an  enlightened  Ricardian  doctrine  of  rent. 

Professor  Fisher  of  Yale  is  the  leading  exponent  of  the  mathe- 
matical method.  As  statisticians  Mayo-Smith  and  Wright, — 
both  now  deceased,  —  Dewey,  Willcox,  Bailey,  and  Falkner  are 
the  best-known  Americans. 


ECONOMIC  THOUGHT  IN  THE  UNITED   STATES        52! 

There  can  be  no  doubt  of  a  strong  tendency  among  American 
economists  to  emphasize  psychological  analysis.  After  1885 
the  thought  of  Jevons  and  the  Austrian  school  took  firm  hold, 
and  American  economics  has  come  to  its  recently  acquired  place 
of  prominence  largely  through  independent  development  of  parts 
of  this  field.  Accordingly  it  is  probable  that  three  of  the  five 
or  six  leading  theorists  are  Clark,  Patten,  and  Fisher,  whose 
thought  may  be  briefly  examined  as  typical  of  the  most  striking 
characteristic  of  American  economics. 

Many  hold  that  Professor  John  Bates  Clark  is  the  greatest  con- 
structive general  theorist  that  America  has  yet  produced.  His 
claim  to  some  originality  in  developing  the  significance  of  mar- 
ginal utility  is  strong,  and  his  name  will  ever  be  associated  with 
the  marginal-productivity  analysis  in  static  distribution.  Many 
of  the  most  promising  of  the  younger  economists  have  been 
much  influenced  by  him.  His  calm,  clear  analysis  has  been 
very  suggestive,  and  has  done  much  to  clear  up  distribution 
problems. 

It  is  interesting  to  speculate  upon  some  of  the  influences  that 
must  have  helped  stimulate  and  mold  the  thought  of  one  who  is, 
perhaps,  America's  leading  economic  theorist.  Professor  Clark's 
thought  shows  some  similarities  to  that  of  Bastiat,  and  it  is  not 
unlikely  that  in  his  early  days  he  was  somewhat  influenced  by  the 
latter.  He  himself  refers  to  the  influence  of  a  suggestion  received 
from  Henry  George.1  As  a  pupil  of  Knies,  too,  he  no  doubt  drew 
upon  that  acute  thinker.  For  the  rest,  he  accepted  the  idea  cur- 
rent among  economists  of  the  historico-sociological  type,  that  so- 
ciety is  an  organism.  Add  to  this  background  Professor  Clark's 
great  power  of  sustained  abstract  speculation,  and  some  of  the 
chief  factors  in  his  work  are  apparent. 

In  his  Philosophy  of  Wealth  (1885)  the  two  main  ideas  are  that 
the  prevalent  theory  of  value  misconceived  the  part  played  by 
utility,  and  that  society  is  an  organism  to  be  treated  as  a  unit  in 
discussing  processes  of  wealth  distribution.  Clark  distinguishes 

1  Distribution  of  Wealth,  Preface,  p.  viii.  George's  idea  is  that  wages  are 
fixed  by  the  product  which  a  man  can  create  by  tilling  no-rent  land.  Clark, 
of  course,  is  far  from  accepting  George's  single  tax  ideas. 


522  ECONOMIC  THOUGHT 

absolute  from  "effective  utility,"  defining  the  latter  as  "power  to 
modify  our  subjective  condition,  under  actual  circumstances, 
and  .  .  .  mentally  measured  by  supposing  something  which  we 
possess  to  be  annihilated,  or  something  which  we  lack  to  be  at- 
tained." 1  Market  value  is  measured  by  this  utility,  estimated  by 
society  considered  as  one  great  isolated  being.2 

Clark  also  emphasizes  the  limits  set  to  competition  in  modern 
society,  assigning  a  large  part  to  non-competitive  economics. 
An  ethical  purpose  is  very  prominent:  a  just  distribution  of 
wealth  is  contrasted  with  the  existing  conditions;  an  appeal  is 
made  for  a  more  rational  means  of  effecting  distribution ;  and 
the  higher  ethical  forms  of  wealth  are  emphasized. 

It  is  by  his  Distribution  of  Wealth,  published  in  1899,  that  Clark 
is  best  known.  Put  in  a  nutshell,  it  is  the  idea  of  the  book  that 
in  a  "  static  "  condition  the  factors  of  production  receive  shares 
corresponding  to  the  productivity  of  their  final  or  marginal  in- 
crements ;  the  process  being  "  controlled  by  a  natural  law." 

The  social  viewpoint  being  taken,  and  society  being  regarded 
as  an  organism,  it  follows  that  distribution  and  exchange,  with 
value,  are  included  in  the  round  of  production.  Distribution 
has  three  stages :  the  division  of  social  income,  first  among  vari- 
ous groups  of  industries,  then  among  sub-groups,  and  finally 
among  the  factors  of  production  within  the  sub-group.  The 
first  two  processes  are  con  trolled  by  the  market  price  of  the  prod- 
uce ;  the  last  —  or  functional  distribution,  as  we  would  say  — 
is  governed  by  productivity,  labor  tending  to  get  what  it  sepa- 
rately produces,  and  capital  likewise.3 

In  order  to  reduce  all  units  to  homogeneity,  Clark  would  fund 
all  the  factors  of  production.  Land  and  capital  are  reduced  to 
an  abstract  mobile  capital  fund  ("  social  capital "),  and  labor 
to  productivity  units  ("social  labor  ").  Then  the  specific  prod- 
uct of  a  unit  of  any  factor  may  be  segregated,  he  maintains,  by 
turning  to  the  margin.  In  the  case  of  labor  this  may  be  found 

1  p.  78.     Compare  Distribution  of  Wealth,   p.  376.    This  statement  is 
subject  to  the  same  criticism  as  was  Menger's.     See  above,  pp.  464,  467  f. 

2  p.  82.     Professor  Seligman  in  his  Principles  of  Economics  (1905)  follows 
this  conception  of  value.  3  Chap.  II. 


ECONOMIC  THOUGHT  IN  THE  UNITED   STATES        523 

widespread  in  a  zone  of  indifference  as  to  employing  more  men. 
In  all  industries  there  is  an  intensive  margin.  It  is  a  chief 
service  of  Clark's  to  have  developed  and  denned  (not  originated) 
the  idea  of  a  fund  of  productive  wealth  abstract  and  not  lost 
in  the  capital  goods  through  which  it  finds  expression  at  any 
given  time.  This  is  similar  to  the  business  usage.  It  is  a  con- 
ception which  helps  to  an  understanding  of  the  mobility  of  capi- 
tal under  competitive  conditions. 

Though,  for  the  most  part,  a  "  natural  "  tendency  to  equalize 
returns  in  different  industries  is  posited  as  the  force  assuring  the 
productivity  correlation,  it  is  made  clear  that  it  is  the  free  com- 
petition among  employers  that  is  assumed  in  the  static  state 
which  insures  the  full  value  of  his  product  to  the  laborer.  The 
pleasure  and  pain  calculus  is  the  mainspring  of  the  whole 
machine. 

Both  wages  and  interest  can  be  "  translated  "  into  the  form 
of  rents  on  concrete  producers'  goods,  and  these  rents  are  elements 
in  determining  values.  Clark  denies  peculiar  significance  to 
land  rent,  and  such  rent  plays  an  almost  inappreciable  part  in 
his  system.  Professor  Clark's  theories  have  not  remained  un- 
questioned.1 Relatively  few  are  in  agreement  as  to  the  organic 
character  of  society,  and  some  believe  that  such  abstraction  as 
characterizes  his  theory  is  hardly  fruitful.  His  "  static  state  " 
is  after  all  quite  similar  to  one  in  which  the  "  natural  "  condi- 
tions thought  of  by  the  classical  economists  exist.  Hobson  and 
others  have  attacked  the  validity  of  the  "  dosing  "  method  of 
isolating  the  specific  product  of  a  given  factor.  Others  deny  that 
land  can  be  treated  as  a  mobile  fund,  holding  that  in  this  it  differs 
from  capital. 

Professor  Simon  N.  Patten  is  one  of  the  most  original  econo- 
mists America  has  produced.  His  chief  economic  writings  are 
Premises  of  Political  Economy  (1885),  The  Consumption  of  Wealth 
(1889),  Dynamic  Economics  (1892),  and  The  Theory  of  Prosperity 

1  See,  e.g.,  Carver  and  Hobson's  discussion  in  Jr.  of  Pol.  Econ.,  1904-1905 ; 
Carver's  discussion  in  Q.  J.  Econ.,  August,  1891 ;  Davenport's  Value  and 
Distribution,  Chap.  XXII;  McFarlane  in  A.  E.  A.  Pubs.,  3d  series,  Vol. 
IV,  No.  i. 


524 


ECONOMIC  THOUGHT 


(1902).  To  indicate  briefly  some  of  Patten's  characteristic 
doctrines : l  he  has  developed  the  importance  of  consumption, 
making  changes  that  adapt  it  to  environment — a  factor  hi  reduc- 
ing costs  as  men  progress;  he  is  optimistic,  denying  a  law  of 
diminishing  returns;  he  regards  the  shares  in  distribution  as 
price-determined,  costs  cutting  no  figure ;  and,  in  order  to  har- 
monize the  idea  of  increasing  demands  with  that  of  increasing 
returns,  he  makes  monopoly  normal  and  gives  it  a  large  part.2 
The  idea  of  alternative  use  and  opportunity  costs  finds  frequent 
expression.  Patten  has  pointed  out  that  land  will  not  be  aban- 
doned exactly  at  the  point  where  returns  just  fail  to  cover  costs 
of  bringing  it  under  cultivation,  but  that  production  will  be 
carried  further. 

Professors  Clark  and  Patten  differ  markedly  in  the  place  which 
they  give  to  monopoly.  The  former  gives  it  scant  attention,  and 
its  role  in  his  theory  is  unimportant.  With  the  latter  the  opposite 
is  true.  Accordingly,  they  also  differ  in  the  scope  which  they 
would  allow  to  government  interference,  and,  while  Professor 
Clark  would  emphasize  private  property  rights  and  minimize 
government  activity,  Professor  Patten  would  allow  to  the  gov- 
ernment an  active  policy  in  maintaining  the  social  interest. 
More  recently,  Professor  Clark  has  perhaps  made  a  larger  place 
for  government  intervention,  but  it  is  for  the  purpose  of  main- 
taining his  ideal  of  competition  free  from  restraint. 

Professor  Irving  Fisher  has  summed  up  his  views  on  economic 

1  These  views  form  the  basis  of  a  recent  text-book,  Economics  (1908),  by 
Nearing  and  Watson,  —  Patten's  pupils.     For  a  review  of  his  Dynamic 
Economics  by  Clark,  see  Ann.  Amer.  Acad.,  Ill,  30-44. 

2  "The  motives  for  production  increase  as  wants  grow  in  intensity;   but 
costs  fall  off  with  the  growth  of  productive  power,  thus  destroying  the  equal- 
ity between  it  and  the  return  in  goods.     A  new  equilibrium  is  created  on  the 
market  by  the  equality  of  marginal  expense  and  marginal  utility.     Wants 
grow  more  rapidly  than  productive  power ;  values  rise,  and  producers  gain 
a  monopoly  power  equal  to  the  difference  between  cost  and  the  expense  of 
goods.     Monopoly  is  thus  essential  to  a  market  equilibrium,  and  the  monop- 
oly fund  has  its  size  fixed  by  the  natural  excess  of  demand  over  supply. 
Intense  wants  and  low  costs  of  production  have  no  other  means  of  equating 
themselves."     (Theory  of  Prosperity,  p.  234.) 


ECONOMIC  THOUGHT  IN  THE  UNITED   STATES        525 

theory  in  two  volumes:  The  Nature  of  Capital  and  Income 
(1906),  and  The  Rate  of  Interest  (1907).  Professor  Fisher  rea- 
sons with  admirable  clarity.  By  adopting  the  accountant's  view- 
point he  has  shed  new  light,  —  though  his  books  illustrate  the 
difficulty  of  adopting  new  terminology.  The  Austrian  idea  is  the 
dominant  one :  the  value  of  capital  goods,  including  land,  is  the 


discounted  valueof"  their  income.     And  a  point  upon  which 
much  stress  is  laid  is^hatjnrorn^  must  noLh±  confused  with  the 
materiaTbbjects  (capital)  which  afford  it.  but  consists  of  t5e 
servicesl'eridered  by  such  objects.     The  interest  rate,  whose  de- 
termination Fisher  would  make  the  chief  problem  of  economics,  I 
depends  upon  the  "  time  preference  "  of  individuals  for  present   / 
over  future  goods,  —  an  agio  theory.     Professor  Fisher  deserves  { 
credit  for  early  discussions  of  the  relation  between  the  value 
of  money  and  interest  rates. 

Professor  Fetter's  thought,  in  its  stress  upon  "psychic  in- 
come^' and  in  its  treatment  of  capitalization  and  time-value, 
illustrates  the  common  tendency. 

Quite  different  from  the  foregoing  are  the  views  of  Professor 
T.  N.  Carver,  who  perhaps  well  represents  the  great  body  of  the 
less  radical  American  economists.  In  his  Distribution  o]  Wealth 
(1904),  he  calls  a  halt  to  one-sided  emphasis  of  psychology,  and 
points  to  the  economic  environment  factor.  The  book  contains  a 
noteworthy  restatement  of  the  law  of  diminishing  returns  and  an 
able  criticism  of  the  Austrian  ideas  on  interest,  applicable  in  a 
great  degree  to  Fisher  and  Clark.  He  makes  the  law  of  diminish- 
ing returns  universal  and  not  confined  to  land  only.  If  to  a  lim- 
ited quantity  of  any  factor  increasing  quantities  of  other  factors 
are  added,  a  time  will  come  when  the  return  diminishes  relatively 
to  the  quantity  added.  To  Carver  the  question  is,  "  Why  is 
this  income  more  than  sufficient  to  keep  the  supply  of  capital  in- 
tact, or  to  replace  it?  "  As  in  the  case  of  value,  cost  and  pro- 
ductivity are  synthesized.  Unless  the  supply  of  capital  were  in 
some  way  limited,  its  marginal  productivity  would  disappear; 
and  these  limits  are  the  cost  of  making  capital  goods,  and  the 
sacrifice  of  waiting,  including  an  element  of  incalculable  risk. 

There  is  a  sense,  Carver  holds,  in  which  rent  does  not  enter  prices 


526  ECONOMIC  THOUGHT 

as  wages  do,  for  land  is  separable  from  the  owner  and  does  not 
have  to  be  persuaded  to  work  by  some  offer  of  advantage.1 

Moreover,  Professor  Carver  lays  more  stress  upon  the  Malthu- 
sian  theory  of  population  in  connection  with  the  theory  of  wages 
than  do  the  preceding  writers. 

In  substantial  accord  with  Carver's  thought  are  the  Wisconsin 
and  Chicago  groups. 

But  the  names  of  the  great  body  of  American  Economists 
will  be  found  among  those  who  have  written  some  monograph  or 
article  upon  some  special  branch  of  economics.  On  the  subject 
of  monopolies  and  trusts  there  are  Professors  Ely,  Jenks,  and  H. 
C.  Adams.  Professor  Ely,  in  his  Monopolies  and  Trusts  (1900), 
presents  an  early  and  notable  classification,  and  argues  against 
the  idea  that  large  capital,  as  such,  is  a  cause  of  monopoly.  He 
formulates  a  law  of  monopoly  price  as  follows :  "  The  greater  the 
intensity  of  customary  use,  the  higher  the  general  average  of 
economic  well-being,  and  the  more  readily  wealth  is  generally  ex- 
pended, the  higher  the  monopoly  price."  Professor  Jenks'  book, 
The  Trust  Problem  (1900),  is  notable  for  its  concrete  discussion  of 
the  wastes  of  competition  and  its  contention  that  capitalistic 
monopolies  are  real.  Professor  Adams,  in  his  monograph  on  The 
State  in  Relation  to  Industrial  Action  (1887),  holds  that  a  law  of 
increasing  returns  exists  which  operates  to  make  the  industries 
concerned  monopolistic.  This  monograph  has  had  a  deep  in- 
fluence, and  has  done  much  to  break  down  laisser  faire  in  theory. 

In  the  monetary  field  Andrew,  J.  F.  Johnson,  Kinley,  Laugh- 
lin,  Scott,  F.  M.  Taylor,  and  White  are  well  known.  In  public 
finance  Seligman,  H.  C.  Adams,  and  Bullock,  are  most  note- 
worthy, Professor  Seligman's  works  on  taxation  having  been 
translated  into  several  languages.  In  the  transportation  field 
Hadley,  E.  R.  Johnson,  B.  H.  Meyer,  and  W.  Z.  Ripley  have 
earned  permanent  recognition.  And  Commons,  T.  S.  Adams, 
and  Seager  have  just  fame  as  writers  upon  the  economics  of  the 
labor  problem. 

Nor  is  industrial  history  slighted,  as  monographs  too  numer- 
ous to  mention  attest.  The  most  notable  works  are  Dewey's 

1  p.  207. 


ECONOMIC  THOUGHT  IN  THE  UNITED   STATES        527 

Financial  History  of  the  United  States  (1903),  Taussig's  Tariff 
History  of  the  United  States  (1901),  Hammond's  The  Cotton 
Industry  (1897),*  and  Day's  History  of  Commerce  (1907). 
Books  on  the  general  industrial  history  of  the  United  States  have 
been  written  by  Bolles,  Wright,  Coman,  and  Bogart. 

A  hopeful  sign  as  to  the  future  significance  of  economics,  ap- 
parent in  America,  as  notably  in  Germany  and  Italy,  is  the  em- 
ployment of  economists  by  the  government.  As  early  as  1893, 
Professor  Folwell  could  say  before  the  American  Economic  As- 
sociation :  "  We  seem  already  to  have  made  some  impression  on 
the  public.  One  of  our  members  has  been  called  to  assist  in 
framing  a  system  of  taxation ;  a  second  to  assist  the  national  rail- 
way commission ;  a  third  to  give  testimony  in  a  case  involving 
municipal  ownership  of  gas  works."  2  This  tendency  has  grown. 
Among  the  men  who  have  done  notable  work  are  H.  C.  Adams 
of  the  Bureau  of  Statistics  and  Accounts  of  the  Interstate  Com- 
merce Commission ;  J.  W.  Jenks  as  agent  for  the  United  States 
Industrial  Commission  (1899-1901),  special  commissioner  for 
the  War  Department  to  investigate  currency,  labor,  etc.,  in  the 
Orient,  and  in  other  capacities ;  W.  F.  Willcox  as  census  statisti- 
cian; E.  D.  Durand  in  the  Bureau  of  Corporations  and  now 
heading  the  Census  Bureau ;  C.  P.  Neil  in  the  Bureau  of  Labor ; 
Andrew  of  the  National  Monetary  Commission,  now  Assistant 
Secretary  of  the  Treasury ;  Hollander  in  adjusting  Porto  Rican 
finance ;  B.  H.  Meyer  first  as  head  of  the  Wisconsin  State  Rail- 
way Commission,  later  as  a  member  of  the  Interstate  Commerce 
Commission ;  and  many  others  might  be  mentioned.  In  fact, 
in  America  it  is  quite  generally  the  case  that  academic  economists 
have  had  some  experience  in  some  branch  of  government  service, 
state  or  federal. 

1A.  E.  A.  Pubs. 

2  Ibid.,  VIII,  pp.  31-32.  The  men  so  employed  were,  respectively,  R.  T. 
Ely,  H.  C.  Adams,  and  E.  W.  Bemis. 


CHAPTER    XXXIH 
CONCLUSION 

General  Resume1.  —  All  the  history  of  economic  thought 
may  be  divided  into  two  parts:  one  of  these  embraces  the 
era  before  the  establishment  of  economics  as  a  science;  the 
other  extends  from  the  rise  of  that  science  to  the  present 
time.  In  the  earlier  era,  economic  thought  was  mingled 
with  religious  and  ethical  doctrines  and  with  laws,  and  did 
not  exist  as  a  distinct  body  of  theory.  This  was  the  case 
in  the  ancient  world  and  in  the  Middle  Ages.  Nor  was  there 
sufficient  separate  interest  in  economic  matters  to  cause  further 
development;  for  with  Hebrew  and  Hindu,  Greek  and  Roman, 
and  Scholastic  alike,  we  find,  on  the  one  hand,  but  a  rudimentary 
development  of  such  stimulating  economic  phenomena  as  those 
concerning  public  finance  and  the  labor  problem,  while,  on  the 
other,  hostile  ethical  and  religious  concepts  so  dominated  as  to 
hinder  speculation  about  such  economic  problems  as  existed. 
Wealth  was  little  appreciated  by  the  leading  thinkers.  Through- 
out the  period,  men  for  the  most  part  believed  in  an  objective 
just  price  for  goods  and  services,  a  belief  normally  accompanied 
by  minute  regulation  of  industry.  Perhaps  the  other  most  not- 
able points  in  the  pre-scientific  stage  of  economic  thought  are 
the  discussion  by  Greek  philosophers  of  division  of  occupation, 
"natural "  uses,  and  communism ;  the  Roman  jurists'  treatment 
of  money;  and  the  medieval  doctrines  concerning  value  and 
usury. 

With  the  rise  of  nations  and  the  growth  of  money  economy 
came  Mercantilism  and  the  dawn  of  Economics  as  a  science,  — 
though  it  was  but  the  first  faint  flush  announcing  what  was  soon 
to  be.  Economic  topics  were  given  more  frequent,  extended,  and, 

528 


CONCLUSION  529 

above  all,  more  distinct  attention.  Wealth  was  highly  appreci- 
ated. Its  chief  source  was  considered  to  be  commerce,  partly 
no  doubt  on  account  of  an  overemphasis  of  "  treasure."  In  their 
empirical  studies  and  policies  concerning  foreign  trade,  balance  of 
trade,  and  taxation  the  Mercantilists  laid  the  foundation  for 
further  development.  In  general  theory,  some  fragmentary  dis- 
cussions of  value  and  the  analysis  of  the  factors  of  production  are 
noteworthy. 

The  real  founding  of  the  science  of  Economics,  which  marks  the 
rise  of  the  second  era,  came  to  pass  about  the  middle  of  the  eight- 
eenth century,  being  closely  associated  with  the  contemporaneous 
revolution  in  social  philosophy.  Then  it  was  that  the  Physio- 
crats, or  Economistes,  in  reaction  against  Mercantilist^  poli- 
cies, elaborated  the  old  Greek  idea  of  nature  and  natural  freedom 
as  handed  down  through  the  Middle  Ages.  Wealth,  they  held, 
comes  from  Nature,  and  arises  from  her  bounty.  Agriculture, 
instead  of  commerce,  thus  took  the  center  of  the  stage.  And 
in  the  place  of  regulation,  laisser  faire  became  the  watchword. 
Naturally  the  service  of  the  Physiocrats  was  largely  negative, 
consisting  in  greater  freedom  from  hampering  regulations  and 
taxes.1  More  positively,  their  scheme  of  distribution  became  the 
father  of  succeeding  attempts  to  trace  the  round  of  production, 
exchange,  distribution,  and  consumption.  Their  emphasis  of 
land  and  its  surplus  (produit  net)  was  an  influential  conception. 
And,  above  all,  their  attempt  to  formulate  a  body  of  exact  prin- 
ciples separate  from  morals,  politics,  and  jurisprudence  gave 
economics  its  first  claim  to  be  a  science. 

Adam  Smith  clinched  that  claim.  Building  upon  the  thought 
of  English  predecessors  and  the  Physiocrats,  and  influenced  by 
a  different  environment,  he  turned  from  "  nature  "  or  agricul- 
ture as  the  source  of  wealth,  and  gave  to  labor  that  position. 
While,  on  the  whole,  a  believer  in  free  trade  and  laisser  faire, 
he  was  more  of  an  opportunist,  and  was  less  rigid  and  absolute 
in  applying  his  doctrines.  Smith's  work  was  fuller  and  more 
comprehensive  than  that  of  Quesnay  or  Turgot,  and  the  firm 
establishment  of  Political  Economy  may  justly  be  dated  from 
1  Above,  pp.  154  f. 

2M 


530  ECONOMIC  THOUGHT 

the  Wealth  of  Nations  (1776).  Smith  took  the  sole  emphasis 
away  from  production,  putting  the  consumer  more  to  the 
front,  and  in  doing  so  prepared  the  way  for  a  broader  treatment 
of  economics.  He  also  presented  a  more  comprehensive  dis- 
cussion of  value  and  the  shares  in  distribution  than  any 
predecessor.  Although  some  of  his  followers  wrote  more  accu- 
rately and  consistently  than  he,  Adam  Smith  excels  the  great 
majority  of  them  in  breadth  of  view,  and  there  came  a  time 
when  many  economists  turned  back  to  the  Father  of  Political 
Economy  rather  than  to  his  immediate  successors.  Much  of 
what  is  here  written  concerning  the  Classical  School  will  apply 
to  him  only  in  part. 

The  Wealth  of  Nations  soon  gained  ascendency  in  the  leading 
countries,  and  the  followers  are  mostly  to  be  classed  as  mem- 
bers of  the  Classical  School.  There  were,  however,  three  main 
branches,  corresponding  to  as  many  different  national  environ- 
ments. In  England,  a  group  of  economists,  with  whom  the 
designation  "  classical  school  "  is  generally  associated  and  chiefly 
of  whom  what  follows  is  written,  centered  around  Ricardo, 
accepting  his  doctrines  of  rent  and  adding  the  Malthusian 
principle  of  population.  With  this  group,  the  problems  of 
distribution  of  wealth  were  for  the  first  time  given  chief  atten- 
tion; the  main  framework  of  their  economic  thought  con- 
sisted of  the  theory  of  value  and  the  shares  of  the  factors  of 
production,  land,  labor,  and  capital.  In  their  reasoning,  the 
interests  of  these  factors  were  made  more  or  less  antagonistic, 
and  their  views  tended  toward  pessimism,  —  a  tendency  logi- 
cally connected  with  materialism  and  individualism.  9Value 
was  regarded  as  cost-determined,  and  was  treated  as  an  objective 
phenomenon  by  the  dominant  element. 

In  France,  J.  B.  Say  (1803)  contributed  to  the  arrangement 
and  classification  of  the  new  science.  There,  a  larger  element 
of  the  eighteenth-century  nature  philosophy  remained,  and  the 
general  tendency  was  toward  idealism  and  optimism.  This 
general  tendency  being  in  logical  accord  with  the  philosophy 
of  Socialism,  it  is  easy  to  explain  the  fact  that  in  France  the 
earliest  nineteenth-century  socialistic  propaganda  flourished. 


CONCLUSION  531 

"  Liberalism  "  was  the  term  which  came  to  be  applied  to  French 
classicists,  and  in  general  to  the  continental  followers  of  the 
English  classical  political  economy. 

German  economists,  largely  on  account  of  their  Kameralistic 
background,  had  a  somewhat  different  notion  of  economics. 
Though  Smith  had  a  small  group  of  very  close  followers,  Ricardo 
was  not  so  generally  accepted,  and  the  abstract  theorizing  on 
problems  in  distribution  is  not  often  found.  The  significance 
of  national  lines  and  moral  forces  was  more  recognized,  and 
administrative  and  financial  matters  were  given  more  attention. 

Remembering  the  differences  among  its  branches,  —  and 
especially  its  relatively  slight  hold  on  Germany,  —  it  may  be 
said  that  the  members  of  the  old  Classical  School  stood  for 
certain  philosophical  tendencies,  a  closely  associated  methodol- 
ogy, and  a  group  of  characteristic  economic  doctrines.  As  to 
their  philosophy,  it  was,  speaking  generally  and  in  a  pretty 
sweeping  fashion,  materialistic  utilitarianism.  They  considered 
tangible,  material  things ;  they  were  individualistic  —  "  the  al- 
liance of  political  economy  with  Utilitarianism  may  be  said  to 
have  given  a  new  lease  of  life  to  the  individualism  of  the  eigh- 
teenth century"  ; l  they  were  hedonistic,  emphasizing  deliberate 
calculation  of  pleasures  and  pains  almost  to  the  exclusion  of 
habits  and  instincts.  Yet  the  development  of  economics  along 
truly  scientific  lines  was  hampered  by  the  dominance  of  an 
ethical  element  in  their  thought  which  was  based  upon  the 
preceding  individualistic  nature  philosophy ;  for  "  freedom  of 
competition  "  was  made  an  ultimate  test.  The  results  of  per- 
fect freedom  were  not  to  be  questioned.  Freedom,  moreover, 
was  generally  a  purely  formal  concept,  meaning  freedom  from 
legal  restraint,  and  the  like,  rather  than  real  economic  freedom, 

Hand  in  hand  with  this  philosophy  went  an  abstract-deduc- 
tive method.2 

Some  of  the  most  marked  characteristics  of  the  doctrines  of 
the  Classicists  may  be  stated  as  follows.  To  them,  value 
generally  meant  objective  exchange  value.  Estimation  by  the 

1  Bonar,  Philosophy  and  Political  Economy,  p.  219. 
*  Cf.  above,  pp.  9  f.,  233  f. 


532  ECONOMIC  THOUGHT 

subject  received  scant  attention,  —  though  this  is  less  true  of 
France  than  of  England.  Accordingly,  the  part  played  by 
utility  was  underemphasized.  Value  was  regarded  as  deter- 
mined by  cost,  and  throughout  a  greater  part  of  the  classical 
period  there  was  a  constant  tendency  to  emphasize  labor-pain 
costs  as  the  ultimate  thing.  They  often  confused  the  entre- 
preneur with  society,  shifting  their  viewpoint  from  one  to  the 
other;  for  there  was  no  clear  appreciation  of  the  distinction 
between  the  idea  of  ultimate  social  costs  and  the  expenditures 
of  the  business  undertaker.  Their  system,  furthermore,  con- 
sidered exchange  values  as  the  ultimate  thing :  wealth  equaled 
a  quantity  of  exchange  value.  Accordingly,  little  attention 
was  given  to  public  wealth  as  distinguished  from  private  riches ; 
and,  while  a  clearly  avowed  limitation  of  the  scope  of  the 
science  to  objectively  measured  exchange  values  is  quite  per- 
missible, there  was  point  to  the  criticism  that  broader  con- 
siderations were  slighted  and  confused  with  narrower  by  them. 
Their  idea  was  that  welfare  depends  upon  a  stock  of  material 
goods,  and  production  was  encouraged  without  regard  to  the 
law  of  diminishing  utility.  Lacking  the  idea  of  marginal  utility, 
they  did  not  realize  the  limitations  of  their  viewpoint.  The 
school  held  to  the  tripartite  division  of  the  factors  of  produc- 
tion, —  land,  labor,  capital,  —  and  emphasized  the  distinctness 
of  each.  All  believed  in  the  peculiar  importance  of  land  and 
the  margin  of  cultivation,  but  there  was  a  split  in  the  ranks  over 
the  merits  of  the  landholders'  interests.  The  Classicists  of  the 
dominant  type,  however,  all  consciously  or  unconsciously  up- 
held the  interests  of  capital  and  of  the  capitalist  class,  making 
capital  an  independent  factor  upon  which  labor  was  thought  of 
as  being  largely  dependent. 

Needless  to  say,  the  foregoing  principles  and  theories  found 
expression  in  the  advocacy  of  a  body  of  rules  of  action,  the  art 
of  applied  economics.  Such  rules  as  concerned  poor-relief, 
tariff,  taxation,  and  organized  labor,  are  well-known  examples. 
The  members  of  the  Classical  School  were  largely  practical  in 
their  purposes,  and  much  of  their  thought  appeared  in  pam- 
phlets dealing  with  the  issues  of  their  day. 


CONCLUSION 


533 


Almost  as  soon  as  they  began  to  take  shape,  critics  rose 
against  these  philosophical  ideas,  methods,  and  economic  doc- 
trines; and  as  they  grew  and  hardened,  dissenting  schools 
came  into  existence.  Several  of  the  earliest  critics  (e.g.  Lauder- 
dale,  Rae,  Sismondi)  accepted  individualism  and  materialism 
in  part,  but  stood  for  a  recognition  of  the  lack  of  harmony 
between  public  and  private  interests,  and  for  a  contrast  between 
utility  and  exchange  value.  With  an  unconscious  ethical  basis, 
the  possibility  of  overproduction  was  implied  or  stated. 

Next  one  notes  a  nationalistic  criticism,  a  criticism  most  char- 
acteristically German,  though  it  found  expression  in  America. 
Opposing  the  validity  of  the  cosmopolitanism  of  the  classical 
theory,  such  men  as  Adam  Miiller  and  Friedrich  List  stressed 
the  importance  of  the  state  and  of  national  lines  as  limiting  the 
application  of  economic  laws.  Such  thinkers  were  idealistic  in 
their  tendencies,  one  evidence  of  their  idealism  being  their 
exaltation  of  the  political  institution  and  their  opposition  to 
individualism.  They  opposed  free  trade  as  a  general  rule. 

Then  Socialism  presented  a  still  more  radical  opposition  to 
the  dominant  classicism.  Beginning  with  the  Utopian,  bour- 
geois thinkers  like  Saint-Simon,  Owen,  and  Fourier,  the  Social- 
istic thought  tendency  reached  a  climax  with  the  materialistic 
and  revolutionary  doctrines  of  Marx  and  Engels  from  1848  on. 
As  Socialism  developed,  it  underwent  a  striking  transformation 
in  philosophy.  From  idealism,  it  passed  through  an  attempt 
at  realism  to  materialism.  From  associationism,  through 
nationalism  (State  Socialism),  it  passed  to  internationalism 
This  development  attended  a  growing  revolutionary  aspect. 
Now,  more  lately,  with  more  opportunist  and  "  evolutionary  " 
tendencies,  the  materialism  of  Marx  has  been  questioned. 
Socialism  as  a  positive  force  is  logically  connected  with  the 
philosophy  of  idealism. 

As  a  school  of  economic  dissent,  Socialism  has  brought  the 
question  of  distributive  justice  to  the  front,  has  led  to  the 
study  of  such  postulates  of  economics  as  the  "  rights  "  of  private 
property  and  contract,  and  has  made  economists  thresh  out  such 
questions  as  the  labor  theory  of  value  and  the  idea  of  surplus. 


534  ECONOMIC  THOUGHT 

Meanwhile,  especially  in  Germany  and  England,  signs  of  a 
coming  revolt  against  the  dogmatism  of  the  Classical  School 
appeared  in  the  forerunners  of  the  Historical  School.  Sismondi, 
Miiller,  and  List,  and  Richard  Jones  may  be  mentioned,  and 
the  significance  of  the  French  philosopher,  August  Comte, 
in  this  connection  is  not  to  be  forgotten.  While  the  preced- 
ing opponents  had  assailed  the  philosophical  and  ethical  system 
of  the  Classical  School,  this  movement  was  primarily  directed 
aganist  the  method ;  though  it  was  necessarily  closely  related 
to  the  philosophy  on  the  one  hand,  and  the  logic  of  the  theory 
on  the  other.  It  was  stimulated  by  the  Hegelian  philosophy 
and  the  current  developments  in  jurisprudence,  philology,  and 
ethnology. 

But  before  the  historical  movement  could  culminate,  John 
Stuart  Mill  attempted  a  restatement  of  the  classical  system, 
his  Principles  appearing  in  1848.  Mill's  face  was  turned 
toward  new  things,  but  his  mind  was  filled  with  the  teaching 
of  Ricardo.  The  result  is  that  his  work  has  been  justly  called 
unfinal  and  transitional.  We  know  that  he  was  influenced  by 
the  Saint-Simonians,  Thompson,  and  other  Socialists  and  social 
reformers.  The  criticisms  of  Sismondi  and  Rae  were  well 
known  to  him.  Certainly  his  strong  idealistic  and  humani- 
tarian tendencies,  his  belief  in  man's  power  to  modify  indus- 
trial conditions  for  the  better,  and  his  distinction  between 
national  and  individual  wealth,  are  evidences  of  a  partial  align- 
ment with  the  forces  of  dissent.  He  was  hardly  affected,  how- 
ever, by  the  beginning  of  the  movement  for  a  more  concrete 
and  historical  method;  though  his  logical  training  led  him  to 
state  his  premises  more  clearly  than  the  great  majority  of  his 
predecessors.  Mill's  Principles  is  more  largely  devoted  to 
what  is  sometimes  called  social  economics  than  were  the  works 
of  most  of  the  Classicists,  and  dynamic  problems,  such  as  the 
future  of  the  labor  classes  and  the  tendency  of  profits  to  a 
minimum,  are  given  much  attention.  His  discussion  of  the 
grounds  for  government  interference  is  notable.  The  chief 
contributions  in  pure  static  theory  are  his  treatment  of  value 
and  international  trade,  though  even  here  the  unfinal  element 


CONCLUSION  535 

appears,  and  the  theory  is  not  fully  coordinated  and  digested. 
In  fine,  Mill's  restatement  could  not  be  permanently  accepted. 
While  its  style,  spirit,  and  sound  logical  merits  have  given  it  a 
wider  reading  than  any  other  English  work  on  economics,  it 
was  built  of  diverse  elements  which  were  not  closely  enough 
analyzed  nor  consistently  coordinated. 

Later  Classicists  (Fawcett,  Cairnes)  attempted  to  give  a 
more  precise  and  consistent  statement  of  the  terms  of  defini- 
tions, and  at  points  refined  and  perfected  the  analysis  of  the 
forces  of  distribution ; l  but  the  classical  economics  fell  into 
considerable  disrepute. 

Contemporaneously  with  Mill,  the  scattered  tendencies  to 
revolt  against  the  abstract  deductive  methods  of  the  Classical 
School  were  brought  to  a  head  and  fully  developed  by  the  Ger- 
man Historical  School,  beginning  with  Roscher,  Hildebrand, 
and  Knies.  There  was  a  corresponding,  though  less  influential, 
movement  in  England. 

All  the  time,  too,  German  and  later  American  economists 
were  working  toward  an  analysis  of  gross  profits  which  led  to 
important  developments  in  the  theory  of  capital,  interest, 
undertakers'  gains,  and  pure  profits ; 2  and  during  Mill's  life- 
time the  assaults  of  English  and  American  writers  (Longe, 
Leslie,  Thornton,  Walker)  led  to  the  almost  dramatic  downfall 
of  the  wages-fund  theory. 

One  little  spring  which  had  begun  almost  unnoticed  to  trickle 
into  the  troubled  current  of  economic  thought  has  not  been 
mentioned.  This  was  the  idea  of  utility  and  the  subjective  in 
questions  of  valuation.  Suggestions  of  the  idea  had  appeared 
here  and  there,  but  Lloyd  (1834)  and  Gossen  (1854)  first  made 
it  exact  by  distinguishing  marginal  utility,  the  latter's  treat- 
ment being  much  the  fuller.  Then,  in  the  seventies,  Jevons, 
Walras,  and  Menger  won  a  hearing  for  the  idea,  and  further 
progress  was  made  toward  utilizing  it  in  the  explanation  of 
market  values. 

It  was  under  the  stimulus  of  the  marginal-utility  idea  that  a 
new  school  arose  which,  while  largely  following  the  Classical 
1  Above,  p.  495.  2  Above,  pp.  432  ff.,  442. 


536  ECONOMIC  THOUGHT 

School  in  philosophy  and  method,  sought  to  reconstruct  its 
theories  upon  a  subjective  basis.  This  is  the  significance  of 
the  Austrian  school.  Menger  was  the  Austrian  pioneer ;  Wieser 
will  ever  be  remembered  for  his  work  on  the  general  theory  of 
value;  and  Bohm-Bawerk,  while  doing  excellent  work  in  the 
same  field,  has  gained  most  prominence  in  the  particular  prob- 
lem of  valuation  of  capital,  and  interest.  Phillipovich  is  the 
author  of  some  of  the  best-balanced  work  by  this  school.  A 
leading  motive  of  the  school  has  been  a  desire  for  unity  and 
consistency  in  theory,  —  a  desire  which  finds  expression  in 
rebellion  against  the  two-sided  determination  of  value  by 
demand  (utility)  and  supply  (cost), — and  a  great  service  has 
been  a  more  unified  and  consistent  application  of  principles  of 
valuation.  The  influence  of  the  school  has  been  deep  and 
widespread,  being  very  noticeable  in  America. 

On  the  other  hand,  what  may  be  called  the  neo-classical 
school  has  arisen  in  England  under  the  leadership  of  Professor 
Marshall.  This  school  seeks  to  combine  the  valid  criticism  of 
various  dissenting  groups  with  the  sound  portion  of  the  classi- 
cal doctrines.  Thus  the  marginal-utility  idea  is  not  accepted 
as  in  any  degree  supplanting  the  classical  theory  of  value,  but 
as  being  merely  a  refinement  of  the  utility  side :  value  remains 
as  an  objective  point  of  equilibrium  between  the  forces  ex- 
pressed in  demand  and  supply.  A  considerable  body  of  econo- 
mists in  America  and  Germany  is  in  accord  with  this  synthesis. 

Continuity  and  Environment.  —  The  history  of  economic 
thought  affords  abundant  evidence  of  the  influence  of  his 
environment  upon  man,  and  man's  reaction  upon  his  en- 
vironment. The  molding  influence  of  those  physical  and 
psychological  laws  which  so  largely  determine  the  economic 
situation,  social  institutions,  and  intellectual  plane,  is  clearly 
evidenced  in  the  evolution  of  economic  theory.  These  latter 
factors  both  decide  what  problems  shall  confront  man,  and, 
on  the  other  hand,  so  act  upon  the  man  himself  as  to 
modify,  though  not  solely  determine,  his  viewpoint.  Thus, 
in  the  Middle  Ages,  the  economic  situation  was  changed  by 


CONCLUSION  537 

the  growth  of  commerce  and  a  money  economy,  and,  on  the 
one  hand,  new  problems  concerning  value  and  interest  were 
presented,  while,  on  the  other,  men  were  to  some  extent  shaken 
out  of  the  ascetic  viewpoint.  In  more  recent  times,  the  capi- 
talistic organization  of  industry,  and  the  growth  and  organiza- 
tion of  the  wage-earning  class  have  effected  profound  changes 
in  problem  and  viewpoint.  Similarly,  such  social  institutions 
as  the  "  rights  "  of  private  property,  contract,  and  inheritance, 
and  the  forces  of  custom  and  government  activity,  in  their 
development,  have  modified  economic  theories.  This  is  es- 
pecially true  in  the  case  of  the  more  practical  rules  and  doc- 
trines, for  into  the  formulation  of  such  rules  and  doctrines  the 
prevailing  social  order  enters  as  a  more  or  less  consciously 
adopted  premise.  Finally,  the  general  intellectual  progress 
finds  expression  in  economic  theories.  Now  it  is  some  develop- 
ment in  the  methods  of  natural  science,  now  in  philology, 
again  in  jurisprudence  or  philosophy.  We  see  this  interrelation, 
for  example,  in  the  progress  from  the  theological  "  stage  "  to 
rationalism,  and  in  the  methodological  disputes  of  the  nine- 
teenth century.  In  brief,  a  large  part  of  economic  laws  are 
relative  to  time  and  place. 

But,  as  already  pointed  out,1  economic  theory  has  been  in  its 
turn  a  positive  force  reacting  upon  economy,  social  institutions, 
and  other  sciences.  And  this  is  notably  true  at  the  present 
time,  when  no  one  can  look  around  without  realizing  that  through 
legislation  based  upon  economic  principles  his  life  is  increas- 
ingly modified  (taxation,  labor  legislation,  corporation  laws, 
etc.). 

In  fact,  in  emphasizing  the  relativity  of  economic  doctrine, 
men  have  often  been  too  prone  to  overlook  the  element  of 
direct  continuity,  which  has  handed  down  the  theories  of  indi- 
vidual thinkers  or  groups  of  thinkers  to  successors,  so  con- 
necting one  time  or  place  with  another  in  a  more  absolute  way. 
From  the  many  illustrations  of  such  continuity  which  might  be 
presented,  only  a  few  can  be  mentioned.  The  case  of  the 
nature-philosophy  idea  is  a  classic  one.2  Appearing  in  Greek 
1  Above,  pp.  184,  325,  e.g.  *  Above,  pp.  46,  55,  138,  183. 


538  ECONOMIC  THOUGHT 

philosophy,  it  was  formulated  in  Roman  law,  elaborated  by  the 
Scholastics,  made  a  basis  of  the  Physiocratic  system,  and  is 
found  as  a  taint  in  the  logic  of  the  classical  economics.  Ques- 
nay's  Tableau  had  mottoes  from  Socrates  and  Plato's  Laws. 
Aristotle  expressed  certain  ideas  about  the  barrenness  of  money 
and  injustice  of  interest ;  these  were  repeated  by  the  School- 
men ;  and  the  Mercantilists  of  1690  were  still  talking  about  the 
moral  justification  of  interest.  Xenophon  was  continuously 
read,  and  is  referred  to  by  the  Mercantilist,  Davenant.  Cicero 
drew  his  ideas  concerning  labor  directly  from  the  Greeks; 
Hutcheson  his  from  Cicero ;  Smith  his,  in  part,  at  least,  from 
Hutcheson.  The  labor  theory  of  value  well  illustrates  the  idea. 
The  Mercantilists  —  to  go  no  further  back  —  had  the  idea  of 
labor  as  the  father  of  wealth;  this  idea  found  expression  in 
Adam  Smith  and  Ricardo ;  and  was  adopted  by  the  Socialists 
as  a  leading  doctrine.  Or,  take  Kameralism.  The  Kameral- 
ists  drew  largely  upon  the  Corpus  Juris  Civilis,1  and  German 
economics,  with  its  practical  bent  and  emphasis  of  the  juristic 
side,  sprang  from  Kameralism.  To  what  extent  were  Gournay's 
views  what  they  were  because  he  was  a  merchant,  and  to  what 
extent  because  he  studied  and  translated  Gee  and  Culpepper? 
We  know  that  Siissmilch  read  Petty,  that  Sonnenfels  followed 
Sussmilch,  and  that  Malthus  studied  Sonnenfels.  Even  Ricardo 
acknowledges  indebtedness  to  Turgot,  Stuart,  Smith,  Say,  and 
Sismondi;  while  Mill  was  deeply  affected  by  his  studies  in 
the  works  of  various  writers  who  dissented  from  Ricardo's 
views. 

Certainly  one  cannot  but  be  impressed  with  the  fact  that 
it  is  an  extremely  difficult  matter  to  trace  an  idea  to  its  ulti- 
mate source,  and  that  in  many,  many  instances  a  theory  may 
be  traced  directly  back  through  a  series  of  writers.  Of  course, 
even  so,  the  very  fact  that  the  idea  was  adopted  may  have 
been  due  to  local  environmental  conditions.  Yet  that,  through- 
out all  the  course  of  economic  thought,  the  thinkers  have  been 

1  The  Kameralists  were  also  influenced  by  contemporary  English  thought. 
(See  above,  pp.  118,  121  n.) 


CONCLUSION  539 

directly  interrelated  through  their  writings  in  an  important 
way,  can  hardly  be  denied.1 

Some  Main  Points  of  Difference  in  Economic  Thought. 
—  i.  Ethical  Dissent  from  Exchange-Value  Basis.  —  The  gen- 
eral outline  of  the  rise  and  fall  of  economic  schools  has  been 
traced  in  the  foregoing  resume.  Throughout  the  movements 
and  tendencies  so  sketched,  one  thread  runs  which  should  be 
mentioned  in  this  summary,  and  that  is  the  thread  of  oppo- 
sition between  an  ethical  idea  of  utility,  on  the  one  hand,  and 
a  non-ethical  concept  of  exchange  value  on  the  other.  From 
the  beginning  of  economic  thought,  consciously  or  unconsciously, 
this  opposition  has  been  a  fruitful  source  of  dissension.  Aris- 
totle set  forth  the  difference  with  great  clearness,  and  took  the 
utility  side.2  According  to  his  view,  there  is  a  limit  to  what 
man  needs,  which  constitutes  the  natural  or  proper  limit  to 
consumption.  Beyond  this  limit  lies  mere  wealth-getting  ex- 
change, which  has  no  limit  and  is  unnatural.  Overlooking  the 
possibility  of  a  science  based  upon  exchange  values,  he  decried 
wealth-getting  "  chrematistics  "  as  being  contrary  to  his  ethical 
ideal.  Some  of  the  points  of  opposition  which  appear  in  the 
thought  of  those  who  show  similar  tendencies  may  be  indicated 
thus :  — 

Limited  needs  vs.  indefinite  sum  of  satisfactions. 

Leisure  necessary  vs.  continuous  striving  to  produce. 

Consumption  emphasized  vs.  production  emphasized. 

Overproduction  possible  vs.  no  overproduction  possible. 

Public-wealth  (weal)  viewpoint  vs.  private-riches  viewpoint.3 
Societism  (socialism  or  nationalism)  vs.  individualism. 

Utility  (total)  vs.  exchange  value. 

It  is  obvious,  at  a  glance,  that  the  second  column  embraces 
some  of  the  leading  ideas  of  the  Classical  School;  while  the 

1  The  direct  and  absolute  influence  of  the  Physiocrats  has  never  been 
thoroughly  worked  out.  Their  notions  affected  Lauderdale  and  a  number 
of  minor  English  writers,  and  Sismondi ;  and  through  these  men,  influ- 
enced still  others.  *  See  above,  p.  46.  *  Ibid.,  295  f. 


540  ECONOMIC  THOUGHT 

first  contains  those  of  several  schools  of  dissent.  With  the 
dissentients  would  fall  Sismondi,  and,  in  part,  Lauderdale  and 
Malthus.  And  the  Nationalists  and  the  Socialists  would  be 
classed  with  them  on  this  score.  The  line  of  cleavage  is  ethical, 
the  dissentients  one  and  all  proceeding  on  ethical  grounds  in 
their  criticism,  setting  up  ideals  as  to  the  good  or  the  natural. 

The  answer  to  such  critics  must  ever  be:  You  do  well  to 
point  to  the  higher  spiritual  considerations,  to  emphasize  the 
ethical  viewpoint,  and  to  dwell  upon  the  evils  of  the  present 
system ;  but  economics  as  a  distinct  science  has  no  direct  con- 
nection with  these  things.  Its  viewpoint  is  non-ethical,  its 
proper  phenomena  are  the  valuations  involved  in  exchange, 
and  it  deals  with  the  existing  social  and  industrial  order  and 
the  automatic  coordination  of  economic  activities  through 
exchange. 

2.  Optimism  and  Pessimism.  —  Generally,  though  not  nec- 
essarily, connected  with  the  foregoing  difference  in  view- 
point, has  been  the  division  between  optimists  and  pessimists 
in  economic  thought.  The  division  does  not  appear  to  be  of 
the  most  fundamental  importance,  nor  is  it  based  upon  pure 
science ;  but  it  has  characterized  the  thought  of  certain  periods 
and  nations.  As  a  rule,  the  most  immediate  and  obvious 
point  of  difference  between  optimists  and  pessimists  is  found 
in  their  views  concerning  the  relation  of  public  and  private 
interests:  those  who  believe  the  two  run  parallel  or  are  iden- 
tical are  optimists  or  tend  toward  optimism ;  those  who  see 
opposition  and  clash  between  such  interests  naturally  tend  to 
take  pessimistic  views.  Or  another  point  of  difference  may  be 
seen  in  the  attitude  of  the  two  groups  of  thinkers  toward 
the  imminence  of  the  "  stationary  state  "  of  society.  To  get  at 
the  bottom  of  these  tendencies,  one  would  have  to  resort  to  the 
philosophies  of  idealism  and  materialism,  with  their  analogues, 
societism  (belief  in  group  control)  and  individualism. 

Idealists  believe  in  the  ability  of  man  to  dominate  nature 
and  put  off  the  evil  day  of  the  stationary  state;  which  is  a 
comfortable  belief,  and  tends  toward  optimism.  Moreover,  in 
advocating  group  control  through  social  institutions,  they  look 


CONCLUSION  541 

to  the  elimination  of  discordant  individual  or  private  interests. 
Now  the  matter  is  not  so  simple  with  the  materialists  and  indi- 
vidualists, for  they  have  been  divided  into  two  groups.  The 
French  school  of  Liberalists,  for  example,  has  apparently  not 
departed  from  the  idea  of  man's  dependence  upon  natural  en- 
vironment, but,  following  the  Physiocrats,  they  have  regarded 
the  rule  of  nature  as  beneficent,  and  so  have  been  led  to  doc- 
trines of  harmony  rather  than  pessimism.  On  the  other  hand, 
the  English  Classicists  for  the  most  part  believed  that  nature 
was  a  niggardly  jade  whose  one  great  law  was  that  of  diminish- 
ing returns.  Her  sway,  then,  they  tended  to  regard  not  as 
beneficent,  but  as  harsh  and  leading  to  a  stationary  or  declining 
state,  and  hence  their  views  were,  on  the  whole,  rather  pessi- 
mistic. Adam  Smith  sometimes  dwells  upon  the  harmony  of 
interests  secured  by  interplay  of  private  motives  as  guided  by 
a  divine  hand,  and  again  he  emphasizes  the  discordant  elements 
of  society.  The  French  followers  took  the  system  of  harmony ; 
the  English  could  not  reconcile  the  conflicting  interests  which 
their  analysis  disclosed. 

3.  Various  Theories  of  Surplus.  —  One  of  the  most  interest- 
ing threads  of  development  in  economic  thought  appears  in 
the  various  doctrines  of  surplus,  an  obvious  point  of  significance 
being  the  bearing  of  such  doctrines  upon  questions  of  taxation 
and  government  interference.  This  thread  can  be  but  barely 
indicated.  The  purely  economic  idea  of  surplus  is  one  con- 
cerning a  return  in  excess  of  the  amount  required  to  secure  the 
cooperation  of  a  factor  of  production,  that  is,  the  excess  over 
cost  under  competitive  conditions.  The  Physiocrats  made 
land  the  source  of  a  great  surplus,  the  produit  net.  The  Classi- 
cal economists  analyzed  and  elaborated  the  idea,  introducing 
the  concepts  of  intensive  and  extensive  margins,  and  making 
rent  a  differential  return  measured  from  such  margins.  Thus 
rent  was  made  a  relative  surplus  obtained  by  comparing  dif- 
ferent units  of  land  or  investments  on  land.  Some  of  them 
also  regarded  land  ownership  as  a  monopoly  which  might  bring 
the  landlord  abnormal  returns  in  the  shape  of  an  absolute 
surplus.  About  the  middle  of  the  nineteenth  century,  the  doc- 


542  ECONOMIC  THOUGHT 

trine  of  "  unearned  increment "  became  fully  developed  in 
England  (J.  S.  Mill),  the  idea  being  that  increase  in  land  values 
is  largely  outside  the  scope  of  individual  activity,  and  due  to 
society.  This  doctrine  passes  over  into  ethical  regions. 

Some  tendency  to  regard  profits  (interest)  as  containing  an 
element  of  surplus  is  manifest,  —  in  the  residual  claimant  idea 
of  Ricardo,  for  instance,  —  a  tendency  fostered  by  the  lack  of 
a  clear  analysis  of  this  share  in  distribution;  but  Senior's  ab- 
stinence theory  put  interest  upon  a  cost  or  earned  basis,  and 
the  final  separation  of  undertakers'  gains  and  pure  profits 
cleared  the  situation  further.  In  recent  times  the  extension  of 
the  differential-return  analysis  to  labor  and  capital  has  tended 
to  broaden  the  idea  of  economic  surplus ;  while  the  distinction 
between  static  and  dynamic  theory  has  introduced  a  further 
extension  of  the  idea  where  cases  of  friction,  conjuncture,  and 
other  factors  give  more  or  less  temporary  surpluses  from  the 
dynamic  viewpoint. 

More  refined,  but  somewhat  akin  to  the  Physiocratic  idea, 
are  certain  optimistic  theories  of  more  recent  times  (e.g.  of 
Professor  Patten).  A  few  writers,  denying  the  law  of  diminish- 
ing general  returns,  believe  that  costs  decrease  and  that  a  sur- 
plus arises  on  account  of  increasing  demands.  Or,  to  put  it 
in  another  way,  they  believe  that  man,  gaining  more  control 
over  nature,  is  able  to  produce  enough  to  more  than  restore 
the  energy  he  expends.  This  surplus  would  be  held  by  pro- 
ducers as  a  monopoly  return. 

The  use  of  the  "  dosing  method  "  in  economic  analysis  has 
caused  some  thinkers,  beginning  with  H.  von  Thiinen,  to  chase  a 
will-o'-the-wisp  surplus  which  seems  to  arise  as  equal  units  of 
a  factor  are  successively  applied  in  production  with  diminishing 
returns.1 

Again,  an  ethical  notion  of  surplus  exists.  Here,  perhaps, 
would  come  the  idea  of  overproduction  which  has  been  briefly 
analyzed  in  the  preceding  section.  Also  the  various  notions 
concerning  excessive  wealth  are  to  be  mentioned.  But  the 
Socialistic  idea  of  surplus  value  deserves  chief  attention.  The 
1  Cf.  above,  p.  288. 


CONCLUSION  543 

surplus-value  idea  is  most  clearly  expressed  by  Rodbertus 
and  Marx,  though  it  is  suggested  by  Thiinen  and  Sismondi. 
According  to  these  writers,  labor  is  exploited,  or  robbed  of 
a  part  of  its  product,  which  is  retained  by  the  capitalist 
class  as  a  surplus.  These  various  notions  concern  an  amount 
in  excess  of  what  is  just  and  proper,  one  generally  secured  by 
unjust  or  improper  means.  The  Socialistic  doctrine  is  con- 
nected with  economic  analysis,  but  its  chief  bearing  is  an  ethi- 
cal one. 

The  most  recent  idea  of  surplus  to  find  currency  among 
economists  is  of  quite  a  different  order,  being  psychological, 
and  consisting  not  in  value  but  in  utility.  This  is  the  "  con- 
sumers' surplus,"  and  arises  from  the  fact  that  the  consumer 
would  sometimes  be  willing  to  pay  more  for  a  utility  than  he 
is  compelled  to  do  by  market  conditions. 

4.  Cost  vs.  Utility.  —  Another  fundamental  difference  among 
economic  thinkers  concerns  the  emphasis  of  utility  in  economic 
valuations.     Aristotle  began  by  emphasizing  wants  and  utility, 
and  a  scattering  list  of  thinkers  like  Barbon,  Galiani,  and  Con- 
dillac  did  likewise ;    but  as  men  began  the  industrial  conflict 
with  nature,  the  costs  of  production  loomed  large  and  were 
emphasized.     The  classical  theories  of  value  were  cost  theories, 
with    labor  cost  most  prominent.      But  a  reaction  came  in 
the  seventies,  and  then  utility  was  overemphasized  by  Jevons 
and  the  Austrians.     More  recently  a  well-balanced  combina- 
tion of  the  two  has  come  to  the  front:    utility  and  disutility 
are  brought  into  a  synthesis. 

A  concomitant  development  of  the  theory  of  consumption  is 
to  be  noted.  Slighted  by  the  Classicists,  and  with  its  relation 
to  production  misconceived,  "  consumption "  has  taken  its 
place  as  a  distinct  part  of  the  modern  economic  manual. 

5.  Subjective  and  Objective   Viewpoints.  —  Following   closely 
the  preceding  development  has  been  one  in  the  adoption  of 
subjective  and  objective  bases  for  analysis.     Perhaps  the  ear- 
liest tendency  was  subjective,  but  the  founding  of  the  science 
came  with  objective  tendencies,  and,  on  the  whole,  costs  and 
values  were  regarded  objectively  by  the  classical  economists. 


544  ECONOMIC  THOUGHT 

This  went  hand  in  hand  with  the  emphasis  of  cost,1  and  was 
especially  prevalent  in  England.  According  to  this  way  of 
looking  at  things,  costs  are  objective  facts  measured  in  the 
market,  being  often  identified  with  the  expenses  of  the  entre- 
preneur ;  and  market  values  are  objective  records  of  the  forces 
of  demand  and  supply.  Then,  with  the  emphasis  of  utility, 
came  the  subjective  tendency  of  Jevons  and  the  Austrian  school, 
and  the  psychology  of  economic  values  was  more  fully  analyzed. 
The  attempt  was  made  to  fuse  utility  and  cost  in  a  common 
subjective  crucible ;  the  objective  limitations  of  man's  physical 
environment  were  relegated  to  a  place  of  secondary  importance, 
and  "  estimation  "  was  given  the  central  place.  "  Subjective 
exchange  value "  was  distinguished.  Marginal  utility  was 
made  a  veritable  fetish. 

The  question  still  remains:  Shall  we  attempt  so  to  analyze 
motives  and  valuations  as  to  find  an  ultimate  explanation  of 
price  determination,  —  of  the  first  price,  — or  shall  we  accept  the 
exchange  values  which  result  from  the  competition  of  the  market 
as  ultimate  data?  Shall  we  take  the  social  or  the  entrepreneur 
viewpoint  ?  It  may  be  confidently  predicted  that  any  analysis 
proceeding  from  the  former  viewpoint  which  minimizes  the 
objective  will  hereafter  be  recognized  as  one-sided,  while  it  is 
equally  probable  that  the  entrepreneur's  expenses  will  not  be 
accepted  as  ultimate. 

The  Present  and  the  Future.  —  At  the  close  of  this  long 
survey  of,  the  development  of  economic  theory,  it  is  not  un- 
natural to  ask,  Where  are  we  and  whither  are  we  tending? 
A  few  very  broad  generalizations  concerning  the  present 
and  near  future  of  economics  may  with  some  hesitation 
be  hazarded.  It  would  ill  befit  an  account  so  full  of  recorded 
errors  to  venture  upon  dogmatic  predictions,  and  what  is  here 
written  is  but  tentative,  to  be  interpreted  in  the  light  of  the  time 
by  some  future  historian. 

So  much  has  been  written  about  the  philosophy  and  method 
of  various  economists  of  the  past  that  one  wonders  what  may 
be  said  about  those  of  the  present  in  this  regard.  Originally, 
1  But  Senior  combined  cost  and  subjective  viewpoints. 


CONCLUSION  545 

ethical  and  economic  considerations  were  intimately  blended, 
and  the  philosophies  of  idealism  and  materialism  were  not  dis- 
tinguished. In  the  nineteenth  century,  economists  often  tended, 
on  the  one  hand,  to  cast  out  ethical  considerations  through  the 
door  of  vicious  abstraction,  and,  on  the  other,  to  adhere  more  or 
less  consciously  either  to  materialism  or  to  idealism.  At  present, 
however,  a  conscious  allowance  is  made  for  ethical  factors  in 
social  life,  though  they  are  kept  the  more  distinct  for  this  fact ; 
while  the  clear  tendency  is  to  eschew  idealism  or  materialism 
and  to  seek  the  truth  in  a  recognition  of  then-  interrelation.1 
So  it  is  with  method.  The  old  war  of  methods  is  over,  and  though 
new  questions  may  arise,  each  economist  now  uses  in  peace  the 
method  proper  to  himself  and  his  particular  theme,  —  save  only 
that  abstractions  are  more  consciously  entered  upon  and  deduc- 
tions more  carefully  guarded  and  verified.  In  a  word,  on  the 
score  of  method  and  philosophy  economists  have  passed  from 
the  naive,  unsophisticated  stage  to  one  of  scientific  self-con- 
sciousness. 

But  one  exception  appears  noteworthy,  and  even  in  this  case 
the  question  is  already  understood.  This  exception  is  the  prob- 
lem of  hedonism  and  the  pleasure-and-pain  calculus.  Except 
on  a  very  abstract  basis,  it  will  be  agreed  that  such  a  calculus 
can  hardly  serve  as  a  foundation  for  economic  analysis;  yet 
without  it  the  confusion  of  numerous  motives  makes  one  hesitate 
to  formulate  principles.  Few  if  any  hold  to  hedonism  as  an 
explanation  of  the  actual  or  concrete ;  but  many  choose  delib- 
erately and  avowedly  to  abstract  other  motives,  making  eco- 
nomics ("  pure "  economics)  an  hypothetical  science.  Con- 
siderable doubt  exists  as  to  what  is  the  truest  and  most  practica- 
ble course,  a  doubt  which  seems  to  lead  to  the  establishment  of 
different  branches  or  departments  of  economics.  That  there  is 
danger  in  such  separation  and  abstraction,  history  amply  attests ; 
but  surely,  with  the  long  struggle  between  the  Classical  and  His- 
torical Schools  before  him,  the  twentieth-century  economist  may 
escape  the  rock  and  whirlpool  which  wrecked  the  logic  of  his 
predecessors. 

»  Cf.  above,  pp.  8,  371  f.,  473. 

2N 


546  ECONOMIC  THOUGHT 

In  fact,  as  one  looks  back  over  the  course  of  economic  thought, 
one  can  realize  some  tendency  toward  general,  "  pure  "  econom- 
ics. The  Classicists  (Ricardo,  Senior)  tended  in  that  direction  ; 
but  with  Mill  and  the  Historical  School  all  manner  of  sociological 
and  ethical  data  were  embraced.  More  recently,  a  mass  of 
technical  data  from  the  "  natural  sciences  "  and  business  or- 
ganization has  been  exploited,  while  psychological  and  philo- 
sophical materials  have  been  drawn  upon.  But  now  sociology 
has  become  a  fairly  distinct  discipline ;  ethics  has  been  enriched 
by  economic  infusions  and  gained  in  the  exactness  of  its  valua- 
tions ;  while  on  all  hands  one  hears  of  such  subjects  as  economic 
geology,  economic  zoology,  economics  of  agriculture,  business 
economics,  and  the  like.  "  Politics  "  or  "  government,"  too, 
has  grown  in  importance  and  distinctness.  Thus,  by  clearing 
economics  of  related  but  separate  motives  and  "  sanctions," 
and  relieving  it  of  a  sort  of  duty  to  cover  related  phenomena, 
the  way  has  been  prepared  for  a  pure  economics  which  shall  be 
well  rounded  and  at  the  same  time  distinct  and  closely  co- 
ordinated. 

A  closely  related  distinction,  that  between  public  and  private 
economics,  appears  to  be  increasing.  The  growth  of  college 
courses  and  literature  along  the  lines  of  private  finance  and 
semitechnical  commercial  subjects  points  this  way.  The  term 
"  political  economy  "  might  almost  be  rejuvenated  to  designate 
public  economics,  the  branch  which  would  take  the  social  view- 
point. Private  economics  takes  the  individual  viewpoint  in 
defining  wealth  and  income,  and  costs. 

Among  the  various  subjects  hi  pure  economic  theory,  capital 
and  interest  at  present  may  be  said  to  hold  the  center  of  atten- 
tion. Here  the  primary  necessity  seems  to  be  to  come  to  a 
final  understanding  as  to  the  nature  of  capital,  on  which  point 
several  controversies  have  been  carried  on.  Is  capital  an  ab- 
stract mobile  fund?1  Is  it  the  aggregate  of  concrete  capital 
goods?  If  the  former,  any  concrete  good  in  which  the  fund 

1  Of  course,  if  this  fund  is  thought  of  as  a  fund  of  values,  the  question  of 
interest  determination  is  begged,  —  value  of  capital  depends  upon  interest. 


CONCLUSION  547 

may  be  embodied,  including  land,  may  be  regarded  as  a  capital 
good,  and  a  tendency  to  slight  the  consideration  of  cost  and 
supply  of  concrete  goods  follows.1  If  the  latter,  costs  come  to 
the  front,  and  the  peculiar  significance  of  land  rent  clearly  ap- 
pears. The  latter  view  was  held  by  the  classical  economists, 
and  the  former  arose  as  a  result  of  the  subjective  way  of  looking 
at  things  and  the  emphasis  of  utility.  American  economists 
are  divided  on  the  question. 

So  it  is  with  interest.  Fresh  analysis  has  been  brought  to 
bear,  with  the  result  that  new  factors,  or  new  aspects  of  old 
factors,  are  introduced.  Accordingly,  some  theorists  empha- 
size the  difference  in  estimation  of  present  and  future,  making 
interest  an  agio;  others  attribute  it  to  superior  productivity  of 
roundabout  methods ;  and  still  others  hold  to  abstinence,  or  the 
costs  of  saving  and  waiting,  as  the  explanation.  Certainly  the 
classical  theory  has  been  much  broadened  and  enriched.  The 
truth  would  seem  to  be  that  none  of  these  theories  is  entirely 
wrong.  The  agio  and  cost  theories  may  be  regarded  as  comple- 
mentary, and  both  are  supplemented  by  the  roundabout  process 
theory.  The  tendency  of  recent  text-books  and  teaching,  in 
America,  at  least,  appears  to  be  toward  a  working  synthesis  of 
interest  theories. 

In  any  case,  it  is  clear  that  capital  no  longer  occupies  the 
place  of  independent  importance  that  once  it  held.  For  one 
thing,  the  entrepreneur  has  clearly  ousted  the  capitalist  from 
active  participation  in  industry;  and  again,  organization  is 
being  spoken  of  as  a  factor.  Capital  is  regarded  as  a  secondary 
factor  assisting  labor  and  physical  environment.  Economists 
no  longer  regard  it  as  that  which  determines  employment  and 
wages,  but  put  man  and  human  wants,  as  interrelated  with 
physical  environment,  first. 

Perhaps  the  theory  of  pure  profits,  or  profits  proper,  is  in  the 
least  satisfactory  condition,  although  history  shows  great  prog- 
ress. The  undertakers'  gain  has  been  separated  from  rent  and 

1  As  a  matter  of  fact,  the  cost  and  supply  of  the  concrete  good,  considered 
merely  as  an  embodying  medium,  is  significant. 


548  ECONOMIC  THOUGHT 

interest,  and,  more  recently,  from  wages,  —  ordinary  contract 
wages,  at  least.  Thus,  considered  as  a  total  surplus,  the  scope 
of  profits  has  been  narrowed  and  made  more  definite.  Much 
has  been  accomplished  toward  a  complete  understanding  of 
the  factors  which  give  rise  to  such  a  surplus.  But,  as  yet,  no 
one  consistent  theory  for  the  determination  of  this  surplus  has 
become  generally  accepted.  Two  chief  theories  are  advanced : 
one,  the  "  risk  theory,"  which  makes  profits  the  result  of  un- 
certainty, is  an  old  idea  with  a  new  and  more  exact  significance ; 
the  other  regards  profits  as  a  reward,  not  for  risk,  but  for  such 
services  as  coordinating  the  factors  of  production  and  making 
business  plans  and  organization.1  According  to  the  latter 
theory,  the  net  risk  is  borne  by  capitalists.  A  third  kind  of  profit 
theory  might  be  called  the  "changes  theory."  It  would  attrib- 
ute profits  to  unexpected  changes  in  prices,  inventions,  etc. 

The  tendency  to  distinguish  static  and  dynamic  economic 
fields  has  undoubtedly  helped  toward  a  clearer  understanding  of 
profits  proper :  most  thinkers  agree  that  under  dynamic  con- 
ditions the  total  surplus  known  as  profits  is  greater  than  under 
an  assumption  of  static  conditions,  elements  of  chance  and 
change  being  increased. 

Time  was  when  an  imperfect  analysis  left  much  of  distribution 
in  the  residuum.  With  Ricardo,  for  example,  interest  was  the 
residual  claimant.  Now  the  left-over  share  has  been  reduced 
to  profits,  and  parts  even  of  that  residuum  may  be  positively 
explained,  that  is,  may  be  reckoned  as  costs  of  production  or  as 
rewards  for  definite  productive  contributions.  Just  as  interest 
and  profits  are  no  longer  confused  by  the  economist,2  the  time 
is  at  hand  when  the  contents  of  the  pure-profits  catch-all  will 
be  reduced,  leaving  perhaps  a  minimum  element  of  chance  gams 

1  "Profits  are  due,  not  to  risks,  but  to  superior  skill  in  taking  risks." 

—  FETTER,  Principles,  p.  291. 

"...  profit  arises  from  the  fact  that  he  (the  entrepreneur)  is  able 
to   reduce  his  own  risk  below  that  which  others  would  have  to  bear." 

—  CARVER,  Quar.  Jr.  Econ.,  May,  1901. 

2  " Gross  profits"  to  the  younger  economists  seem  to  be  a  sort  of  historical 
concept  retained  out  of  respect  to  John  Stuart  Mill,  el  al. 


CONCLUSION  549 

arising  from  unforeseeable  and  purely  fortuitous  circumstances. 
In  order  to  obtain  this  result,  it  may  be  necessary  to  distinguish 
a  new  "  share  "  in  distribution. 

One  of  the  clearest  evidences  of  the  current  tendency  to  a 
synthesis  of  the  main  antitheses  in  past  economic  thought  ap- 
pears in  recent  developments  in  the  treatment  of  marginal 
utility  in  relation  to  value.  The  marginal-utility  mist  is  being 
cleared  up.  Even  the  plea  that  this  expression  is  a  convenient 
way  of  putting  together  the  forces  back  of  demand  and  supply 
has  been  questioned.  That  marginal  utility  is  reacted  upon  by 
price,  that  it  is  hi  part  an  expression  of  scarcity  and  cost,  that  it 
is  only  an  individual  estimation  not  yet  translated  into  market 
price,  —  all  these  things  are  now  pretty  generally  realized. 
We  no  longer  regard  it  as  an  ultimate  touchstone  for  the  solu- 
tion of  value  questions. 

But  the  importance  of  the  concept  of  marginal  utility  in  con- 
nection with  income  distribution  is  realized  as  never  before. 
Everywhere  the  utility  concept  has  replaced  the  old  notion  of 
material  wealth.1  Practically,  and  in  truth,  wealth  is  a  relative 
matter:  where  the  quantity  of  material  goods  is  great,  the 
utility  of  the  unit  is  small,  and  vice  versa.  The  difference  be- 
tween wealth  and  well-being  appears  very  forcefully,  and  in 
judging  the  latter  the  economist  is  compelled  to  recognize  the 
limitations  inherent  in  his  own  viewpoint. 

To-day,  though  debate  rages  on  all  sides,  the  dominant  note 
is  one  of  tolerance,  and  there  is  an  increasing  amount  of  broad- 
minded  eclecticism.  Nationalists  are  less  narrow;  Socialists 
are  revisionistic ;  the  historical  group  is  less  negative  and  more 
tolerant  of  deduction ;  the  Austrians  and  Neo- Classicists,  more 
careful  in  recognizing  variety  of  motive  and  relativity  of  theory. 
Economists  are  realizing  the  interrelation  of  things ;  more  and 
more  the  quest  for  absolute  laws  of  causation  is  modified  by  a 
knowledge  that  things  move  in  circles  and  mutually  determine 
one  another,  as  do  supply,  demand,  and  price.  Hand  in  hand 
with  the  increasing  distinctness  of  various  economic  branches 
like  transportation,  public  finance,  money  and  banking,  and 

1  E.g.  in  the  definition  of  "production." 


550  ECONOMIC  THOUGHT 

population,  the  central  body  of  economic  principles  has  grown 
in  amount  and  in  unity.  Now,  as  ever,  policies  and  programs 
are  at  issue,  but  as  these  rise  and  fall  the  science  stands.  It 
may  safely  be  said  that  never  since  the  heyday  of  English  Classi- 
cism— or  of  French  Liberalism —  has  the  younger  generation 
of  economists  as  it  comes  upon  the  field  found  so  united  and 
common  a  way  of  looking  at  economic  problems,  or  so  large  a 
body  of  generally  accepted  principles. 


BIBLIOGRAPHICAL  NOTE 

CHIEF  BIBLIOGRAPHICAL  SOURCES 

DUBOIS,  Precis  de  VHistoire  des  Doctrines  Economiques. 

COSSA  (L.),  An  Introduction  to  the  Study  of  Political  Economy,  1892. 

ONCKEN  (A.),  Geschichte  der  National  Okonomie. 

PHILLIPOVICH,  Grundriss  der  Politischen  Oekonomie,  I,  §  19,  and  pp. 

377,  38°,  385,  387,  etc.,  of  8th  ed. 
KNIES,  Die  Politische  Oekonomie  (1883),  pp.  521  ff. 
M'CuLLOCH,  The  Literature  of  Political  Economy. 
CAUWES,  Cours  d'Economie  Politique. 
Revue  d'Histoire  des  Doctrines  Economiques  et  Sociales. 
PALGRAVE,  Dictionary  of  Political  Economy. 
CONRAD,  ELSTER,  et  al.,  Handworterbuch  der  Staatwissenschaft. 

Dubois'  Precis  has  very  complete  lists  of  books  and  articles  dealing 
with  different  writers  and  phases  of  the  history  of  economic  thought, 
drawn  from  all  the  principal  languages.  The  Revue  d'Histoire  is  a 
recent  periodical  devoted  to  the  history  of  economic  thought.  Besides 
its  valuable  articles,  it  contains  bibliographical  material.  Two  vol- 
umes only  have  appeared.  These  two  French  publications  are  per- 
haps the  most  valuable  bibliographical  aids.  Cossa's  well-known 
Introduction  hardly  needs  mention.  It  is  a  mine  of  information,  but 
only  covers  the  years  down  to  1890.  Oncken's  work  has  a  valuable 
classified  list  of  authorities,  but  as  the  first  volume  alone  has  appeared, 
it  only  covers  the  period  through  the  Physiocrats.  As  a  brief  sketch 
of  the  main  steps  in  the  development  of  economic  thought,  together 
with  a  statement  of  the  leading  sources,  the  Grundriss  of  Phillipovich 
is  serviceable.  Knies'  Polilische  Oekonomie,  CauweV  Cours,  and 
M'Culloch's  Literature  are  older  and  of  less  value.  To  the  various 
articles  on  authors,  etc.,  in  Palgrave's  Dictionary  and  in  the  Hand- 
worterbuch will  be  found  appended  lists  of  the  authors'  works  and 
sources  on  the  subject.  The  lists  of  authors'  publications  in  the  latter 
are  generally  but  not  always  complete  and  very  valuable. 


552  ECONOMIC  THOUGHT 

LEADING  WORKS  ON  THE  HISTORY  OF  ECONOMIC  THOUGHT 

No  attempt  will  be  made  to  present  a  complete  critical  bibliography. 
The  chief  bibliographical  sources  have  been  indicated;  and,  in  the 
footnotes,  the  most  important  references  will  generally  be  found  in 
direct  connection  with  the  topic  in  interest.  There  follow,  then,  a 
few  critical  notes  concerning  the  most  valuable  and  available  works, 
and  a  list  of  other  general  treatises. 

BONAR,  J.,  Philosophy  and  Political  Economy  in  some  of  their  Historical 
Relations,  1893  (ad  ed.,  1909). 

This  is  the  only  attempt  to  "present  a  view  of  the  relations  of 
philosophy  and  economics  through  the  whole  of  their  history." 
Begins  with  Plato  and  runs  through  Marx  and  Darwin.  Such 
writers  as  Bodin,  Grotius,  Harrington,  Hobbes,  Locke,  Kant, 
Fichte,  and  Hegel,  are  included,  along  with  the  more  prominent 
economists.  The  thought  is  not  always  clear,  but  the  work  is 
valuable,  and  the  second  edition  has  useful  bibliographical  notes. 
CANNAN,  E.,  A  History  of  the  Theories  of  Production  and  Distribution  in 
English  Political  Economy  from  1776  to  1848,  1893  (ad  ed., 

1903)- 

This  acute  work  is  more  special  and  detailed  than  most  of 
the  others  to  be  referred  to,  as  is  indicated  by  its  title.  It  is 
an  accurate  critical  analysis  of  the  economics  of  the  Classicists. 
Considerable  attention  is  given  to  the  formal  side:  the  sub- 
division of  the  science  and  the  definition  of  the  terms.  A  confu- 
sion between  different  concepts  of  distribution  is  indicated.  At 
points  the  author  is  hypercritical. 

COSSA,  L.,  Guida  allo  Studio  dell'  Economica  Politico,  1876.     English 
translation,  Introduction  to  the  Study  of  Political  Economy,  1892. 

This  classic  work  gives  a  running  account  of  economic  writers 
and  their  works,  being  remarkably  complete  from  the  middle 
ages  to  1890.  The  treatment  of  important  writers  is  too  brief, 
and  so  many  are  mentioned  in  so  small  a  compass  that  proper 
subordination  is  impossible,  but  the  criticisms  are  clear,  pointed, 
and,  on  the  whole,  just.  It  might  be  called  an  encyclopedia  of 
economic  literature.  It  is  written  from  the  viewpoint  of  a  classi- 
cal economist. 

DAVENPORT,  H.  J.,  Value  and  Distribution,  a  Critical  and  Constructive 
Study,   1908. 

In  spite  of  its  title,  the  book  is  chiefly  critical.     It  deals  mostly 


CONCLUSION  553 

with  recent  theory,  and  is  concerned  with  the  pure  theory  of 
distribution.  There  are  chapters  on  Smith,  Ricardo,  Senior, 
Mill,  Cairnes,  Say,  Marshall,  Hobson,  Clark,  and  the  Austrians. 
No  attempt  is  made,  however,  to  treat  the  development  of  eco- 
nomic thought  as  an  evolution  nor  to  associate  it  with  environ- 
mental conditions.  It  is  not  clear,  and  is  difficult  reading,  but  is 
very  valuable  for  advanced  students. 

GIDE  (C.),  RIST  (C.),  Histoire  des  Doctrines  Economiques  depuis  les 
Physiocratesjusqu'd  nos  Jours  (History  of  Economic  Theories  from 
the  Physiocrats  to  our  Own  Time),  1909. 

This  is  the  latest  comer  in  the  field,  and  has  many  excellent 
features.  It  deals  with  the  founders,  their  adversaries,  liberal- 
ism, the  dissenters,  and  recent  theories.  Out  of  731  pages,  292 
are  devoted  to  Socialism  and  social  reform,  and  33  more  are  given 
to  Sismondi.  Aside  from  the  Socialists,  List  is  the  only  German 
given  chief  attention.  The  book  is  well  written,  and  the  account 
of  recent  theories  is  enlightening. 

INGRAM,  J.  K.,  A  History  of  Political  Economy,  1888. 

This  English  work  covers  about  the  same  period  as  Cossa's 
history,  but  more  space  is  given  to  ancient  thought.  The  aim  of 
the  book  is  not  to  give  so  exhaustive  an  account  of  the  literature, 
and  a  better  balancing  of  material  is  the  result.  It  is  written 
from  the  viewpoint  of  the  Historical  School,  and  his  criticism  of 
classical  methods  and  theories  is  not  free  from  bias.  Ingram  was 
an  ardent  adherent  to  Comte's  ideas,  and  thought  that  economics 
could  not  be  a  science  except  as  a  part  of  sociology.  The  criti- 
cism of  the  classical  economists,  the  accounts  of  Cairnes  and  of 
Ingram's  contemporaries,  Leslie  and  Toynbee,  and  the  discussion 
of  the  German  Historical  School,  are  noteworthy  points. 

KAUTZ,  J.,  Die  Geschichtliche  Entwickelung  der  National  Oekonomie  und 
ihrer  Liter  atur,  1860. 

This  book  deals  with  both  ancient  and  modern  thought.  It  is 
the  best  of  the  older  works,  but  is  largely  out  of  date,  as  a  result 
of  numerous  special  investigations.  Kautz  was  a  student  of 
Roscher's,  and  wrote  from  the  standpoint  of  the  Historical  School. 
The  judgments  are  not  always  free  from  haste,  and  the  style  is 
often  declamatory.  Though  rather  ponderous  and  not  free  from 
inaccuracies,  the  book  may  still  be  consulted  with  profit.  There 
is  no  index. 

ONCKEN,  A.,  Geschichte  der  National  Okonomie,  1902.  (Only  the 
"  Erster  Theil  —  die  Zeit  vor  Adam  Smith  "  —  has  appeared.) 


554  ECONOMIC  THOUGHT 

A  learned  and  thorough  treatise,  fully  abreast  of  recent  scholar- 
ship. It  is  given  to  great  detail  at  points,  especially  in  dealing 
with  the  Physiocrats.  (Perhaps  Turgot  is  underrated  by  the 
author.)  This  is  the  best  work  on  the  period  prior  to  Adam 
Smith. 

PRICE,  L.  L.,  A  Short  History  of  Political  Economy  in  England,  1800 
(4th  ed.,  1003). 

This  concise  little  volume  begins  with  Adam  Smith  and  ends 
with  Toynbee.  The  attempt  is  made  to  deal  mostly  with  the 
chief  English  thinkers,  and  to  center  attention  upon  their  most 
characteristic  thought.  Unbiased. 

ROSCHER,  W.,  Geschichte  der  Nalionalokonomik  in  Deutschland,  1874. 
This  has  long  been  the  standard  work  on  German  economic 
thought.     It  is  a  very  detailed  account,  yet  its  substantial  accu- 
racy has  rarely  been  questioned.     The  book  contains  valuable 
sidelights  on  the  economic  thought  of  other  nations. 

Die  Entwickelung  der  deutschen  Volkswirthschaftslehre  im  neunzehnten 
Jahrhundert,  1908.  (The  development  of  German  economic 
theory  in  the  nineteenth  century.) 

This  two- volume  work  consists  of  a  number  of  essays,  mostly 
by  German  scholars,  and  was  published  in  honor  of  Professor 
Schmoller's  seventieth  birthday.  The  history  of  the  theories  of 
production,  distribution,  value,  rent,  wages,  interest,  population, 
etc.,  and  of  various  practical  policies,  is  treated  in  separate  articles 
by  such  specialists  as  Lexis,  Diehl,  Inama-Sternegg,  Bortkiewicz, 
Phillipovich,  etc.  There  is  no  index. 
Other  histories  of  economic  thought  have  been  written,  of  which  the 

following  list  presents  the  most  familiar  titles.     The  most  useful  ones 

are  marked  with  an  asterisk. 

BIANCHINI,  L.,  Scienza  del  ben  vivere  sociale  e  della  economia  degli  stati, 
1845-1855. 

BLANQUI,  J.  A.,  History  of  Political  Economy  in  Europe,  1837  (Ameri- 
can translation,  1880,  from  4th  ed.,  1860). 

*BLOCK,  M.,  Le  Progres  de  la  Science  Economique  depuis  Adam  Smith, 
1897. 

BUNGE,  N.  C.,  Literature  of  Political  Economy,  1900.  (French  trans- 
lation from  Russian.) 

DAMASCHKE,  A.,  Geschichte  der  Nationalokonomie,  1904  (3d  ed.,  1909). 
The  book  is  written  as  a  "  first  introduction  "  to  the  subject. 
Of  its  417  loosely  printed  pages,  155  are  given  to  chapters  on 
Communism,  The  Anarchists,  and  Land  Reform;  and  no  men- 


CONCLUSION  555 

tion  is  made  of  the  Austrian  School.    Social  reform,  rather  than 
economic  theory,  is  emphasized.     List's  importance  is  stressed. 

*DENIS,  U  Histoire  des  Systemes  Economiques  et  Socialistes,  1904-1907. 

*DuBOis,  Precis  de  VHistoire  des  Doctrines  Economiques,  1903.  Vol.  I, 
L'tpoque  anterieure  au  Physiocrates. 

DUHRING,  E.,  Kritische  Geschichte  der  Nationalokonomie  und  des 
Socialismus,  1871  (4th.  ed.,  1900). 

Duhring  was  a  follower  of  Carey.     He  is  unduly  harsh  hi  criti- 
cizing writers  to  whom  he  was  opposed. 

*EISENHART,  H.,  Geschichte  der  Nationalokonomik,  1881 ;  ad  ed., 
1891.  Ingram  styles  this  work  a  "vigorous  and  original  sketch." 
The  writer  has  not  found  it  so  useful  or  readable  as  might  be 
inferred. 

*ESPINAS,  A.,  Histoire  des  doctrines  Economiques,  1892. 

LASPEYRES,  E.,  Geschichte  der  Volkswirthschaf (lichen  Anschauungen  der 
Niederlander  und  ihrer  Litteratur  zur  Zeit  der  Republik,  1865. 

MACLEOD,  H.  D.,  The  History  of  Economics,  1896.  (The  author's 
peculiar  ideas  somewhat  illustrated  from  history.  Not  a  history 
of  economics.) 

*M'CuLLOCH,  J.  R.,  The  Literature  of  Political  Economy,  1845. 

NYS,  E.,  Researches  in  the  History  of  Economics. 

*RAMBAUD,  J.,  Histoire  des  Doctrines  Economiques,  1898  (2d  ed., 
1902). 

ROSCHER,  WM.,  Zur  Geschichte  der  Englischen  Volkswirthschaftslehre, 
1851-1852. 

*Twiss,  T.,  View  of  the  Progress  of  Political  Economy  in  Europe  since 
the  Sixteenth  Century,  1847. 

VILLENEUVE-BARGEMONT,  A.  DE,  Histoire  de  VEconomie  Politique,  ou 
Etudes  historiques,  philosophiques  et  religieuses  sur  Veconomie 
politique  des  peuples  anciens  et  modernes,  1841. 

*VoN  SCHEEL,  H.,    Article  on  History  of  Political  Economy  in  Schon- 

berg's  Handbuch  der  Politischen  Oekonomie. 

From  the  vast  field  of  special  monographs,  only  a  few  will  be  men- 
tioned.    Especially  noteworthy  is  the  group  of  studies  in  the  history 

of  value  theories :  — 

SEWALL,  H.  R.,  The  Theory  of  Value  before  Adam  Smith,  1901  (Ameri- 
can Economic  Association  Publication). 

ZUCKERHANDL,  R.,  Zur  Theorie  des  Preises,  1889. 

KAULLA,  Die  geschichttiche  EnPwickelung  der  modernen  Werththeorien, 
1906. 


556  ECONOMIC  THOUGHT 

Rosx,  B.,  Die  Wert-  und  Preistheorie  mil  Berilcksichtigung  ihrer  dogmen- 

geschichttichen  Entwickelung,  1908. 

WHITTAKER,  A.  C.,  History  and  Criticism  of  the  Labor  Theory  of  Value 
in  English  Political  Economy,  Columbia  University  Studies,  Vol. 
XDC. 

Bohm-Bawerk's  Capital  and  Interest  is  among  the  most  valuable 
critical  examinations  of  the  history  of  economic  theory,  primarily 
for  interest  theories  and  secondarily  for  the  theory  of  value ;  but  one 
must  remember  that  the  author  is  a  leader  of  the  Austrian  school. 

A.  S.  Johnson's  Rent  in  Modern  Economic  Theory,  1902  (American 

Economic  Association  Publication),  is  a  scholarly  discussion  of  the 

place  of  land  in  distribution  which  contains  useful  historical  analysis. 

Such  special  works  as  Higgs'  The  Physiocrats,  and   Small's  The 

Kameralists  (1909),  fill  a  valuable  place  in  the  student's  bibliography. 


INDEX   OF   NAMES 


Adams,  H.  C.,  517  n.,  526,  527. 

Adams,  T.  S.,  526. 

Aftalon,  506. 

Albertus  Magnus,  76. 

Alessio,  491. 

Anderson,  219. 

Andrew,  A.  P.,  526. 

Aquinas,  7,  70,  75-78. 

Aristotle,  3,  9  n.,  16,  40  ff.,  47,  70,  74,  78, 

427  n. 
Asgill,  97. 

Ashley,  418,  497,  503. 
Augustine,  St.,  7. 
Aurelius,  Marcus,  58,  59. 
Auspitz,  481. 

B 

Babeuf,  330. 
Bacon,  n,  399. 
Bagehot,  186,  399  f. 
Bailey,  520. 
Banfield,  450,  454. 
Barbon,  95,  97,  100,  102,  104,  448. 
Bastiat,  185,  241,  251  f.,  521. 
Baudeau,  152. 
Baudrillart,  507. 
Bazard,  332. 
Bebel,  483. 
Beccaria,  153  n. 
Bechers,  n6f. 

Bentham,  8,  233,  347  f.,  349,  448. 
Bernstein,  390. 
Beuregard,  507. 
Biel,  70,  77,  79  n. 
Blackstone,  127  n. 
Blanc,  337  f. 
Blanqui,  108. 
Block,  472,  504,  507. 
Boccardo,  492. 
Bohm-Bawerk,    265    n.,    358,    467   ff., 

470  f.,  555- 
Bohmert,  260,  482. 
Boisguillebert,  134. 


Bonar,  181,  475  n.,  552. 
Borght,  Van  der,  482. 
Bornitz,  115. 
Bosanquet,  213. 
Bourgeois,  506. 
Bourguin,  506. 
Bowen,  249,  511,  516. 
Braun,  482. 
Brentano,  418,  484. 
Bright,  185,  482  n. 
Briscoe,  97. 
Brydges,  153. 
Biicher,  417,  481. 
Bullock,  520,  526, 
Buret,  312. 
Buridan,  77. 
Burke,  314. 
Biisch,  153  n. 

C 

Cairnes,  494. 

Cannan,  92  n.,  206  n.,  552. 
Cantillon,  135,  137,  152,  159,  454. 
Carey,  H.  C.,  13,  240  ff.,  258  f.,  325  ff., 

483,  488. 
Carl   Friedrich,    Margrave    of    Baden, 

154- 

Carlyle,  495. 
Carver,  206  n.,  525  f. 
Cato,  60,  66. 
Cauwes,  505. 
Chamberlen,  97. 
Charlemagne,  77. 
Cherbuliez,  504. 
Chevalier,  277  n.,  503. 
Cheysson,  507. 

Child,  90,  92,  94,  101,  103  £.,  158,  165. 
Cicero,  57,  62,  64. 
Clark,  287  n.,  392,  393,  472,  519,  520, 

521  ff.,  524. 
Clavell,  90. 

Cobden,  185,  405,  482  n. 
Cognetti,  492. 
Cohn,  206  n.,  484. 
Colbert,  19,  97,  134. 


557 


558 


INDEX 


Colson,  507,  508. 

Columella,  60. 

Colwell,  250,  319  n. 

Coman,  sig  n.,  529. 

Commons,  526. 

Comte,  7,  12,  23,  69  n.,  339,  343  n.,  361, 

401,  404,  498. 
Condillac,  153,  448. 
Conigliani,  410,  492. 
Conrad,  418,  479,  484. 
Copernicus,  114. 
Cossa,  E.,  472,  492. 

Cossa,  L.,  31,38, 150,  206 n.,  480, 489, 552. 
Courcelle-Seneuil,  507. 
Cournot,  277,  278,  504. 
Craig,  397,  449. 
Cunningham,  80  n.,  497,  503. 
Cusa,  N.  von,  82. 


Danes,  116,  121  Jf.,  130. 

Darwin,  208,  396,  417. 

Davanatzi,  100. 

Davenant,  94,  95  n.,  101,  103,  no. 

Davenport,  553. 

De  Foville,  507. 

De  Quincey,  235. 

Descartes,  138. 

De  Tracy,  277  n. 

Dewey,  520,  526. 

Diehl,  486. 

Dietzel,  475  n.,  483,  486. 

Dithmar,  116. 

Dove,  502. 

Droz,  312,  341. 

Diihring,  258  n.,  328,  555. 

D  union t,  347. 

Dunbar,  516. 

Dunoyer,  258,  277. 

Dupont,  139,  152. 

Dupuit,  450. 

Durand,  527. 

E 

Edgeworth,  497. 
Eichorn,  409. 
Elder,  250. 
Ely,  206  n.,  517,  526. 
Emminghaus,  482. 
Enfantin,  332. 
Engel,  484. 

Engels,  383,  384  n.,  385  n. 
Ensor,  210. 
Epictetus,  58. 
Everett,  211. 


Falkner,  520. 

F anchor,  260. 

Fawcett,  429,  494. 

Fechner,  446. 

Fenelon,  135. 

Ferguson,  161. 

Ferrara,  488. 

Ferraris,  492. 

Fetter,  472,  520,  525. 

Fisher,  520,  524  f. 

Fix,  312. 

Forfionnais,  153  n. 

Fornari,  492. 

Forti,  490. 

Fortrey,  103. 

Fourier,  334  /. 

Franklin,  152,  194,  238. 

Frederick  the  Great,  109,  in. 

Frederick  William  I,  in,  121. 


Galiani,  153,  448. 

Ganilh,  430. 

Gamier,  276. 

Garve,  271. 

Gasser,  75  n.,  116. 

Gentz,  314. 

George,  149  n.,  404,  516,  521. 

Gerlach,  486. 

Gide,  C.,  505,  506,  553. 

Gide,  P.,  504. 

Giffen,  497  n. 

Gioji,  488. 

Godwin,  194,  210,  330. 

Gossen,  450. 

Gottl,  486. 

Gournay,  150. 

Grahame,  209. 

Gratian,  76. 

Gray,  209. 

Graziani,  490,  492. 

Greeley,  250. 

Grotius,  7,  99,  105,  160. 

Guyot,  507. 


Hadley,  526. 

Haller,  314. 

Hamilton,  238. 

Hammond,  527. 

Harris,  159,  161,  297,  426. 


INDEX 


559 


Hasbach,  419. 

Hazlitt,  209. 

Hearn,  300. 

Hegel,  7,  340,  385,  408,  411. 

Held,  419,  484. 

Helvetius,  163. 

Hermann,  130,  297,  427  jf.,  479,  483. 

Herrenschwand,  153  n. 

Higgs,  151. 

Hildebrand,  9  n.,  411  /.,  484. 

Hobbes,  105. 

Hobson,  497,  501,  523. 

Hollander,  520,  527. 

Hooke,  297. 

Hornig,  116,  118  f. 

Hiibner,  482. 

Hufeland,  271,  433. 

Hughes,  502. 

Hume,  40,  64,  138,  160  /.,  175  n.,  194, 

297. 
Hutcheson,  40,  64,  159  f. 


Inama-Stemegg,  482. 

Ingram,  64,  69,  206  n.,  403,  419,  516,  553. 


Jakob,  271,  433  n. 

James,  517. 

Jarrold,  209. 

Jaures,  390. 

Jay,  506. 

Jenks,  526,  527. 

Jennings,  450. 

Jevons,  151,  264,  353  n.,  450,  453  $.,  474, 

495,  544- 

Johnson,  A.  S.,  556. 
Johnson,  E.  R.,  526. 
Johnson,  J.  F.,  526. 
Jones,  R.,  225,  397 /.,  439  f. 
Jorg,  485. 
Josephus,  32. 
Juglar,  507. 
Justi,  1 1 6,  124  f.,  127,  153  n. 


K 


Kant,  7,  9  n. 
Kautz,  35,  553. 
Ketteler,  485. 
King,  297. 
Kingsley,  502. 
Kinley,  526. 


Klock,  115. 

Knapp,  481,  482,  484. 

Knies,  10,  401,  413  f.,  484,  521. 

Komorzynski,  472  n. 

Kraus,  271. 

L 

Lampertico,  489. 

Landry,  475  Q-,  507. 

Lange,  245,  258  n. 

Lassalle,  382  f. 

Lauderdale,    239,    265,   295  f.,  424  /., 

427  n.,  540. 

Laughlin,  519,  520,  526. 
Launhardt,  481. 
Laveleye,  504. 
Law,  97. 
Leibknecht,  483. 
Leibnitz,  7. 
Le  Play,  504,  508  f. 
Leroy-Beauh'eu,  507. 
Leslie,  163,  260,  401  f.,  441. 
Le  Trosne,  143,  152. 
Levasseur,  507  f . 
Lexis,  419  n.,  475  n.,  482. 
Lieben,  481. 
List,  9  n.,  258,  273,  290,  317  S-,  483, 

483  n. 

Lloyd,  211,  449. 

Locke,  8,  100,  102,  138,  140,  158,  297. 
Longe,  439. 
Longfield,  449. 

Loria,  475  n.,  490  f.,  492,  493.. 
Lotz,  271,  427  n. 
Louis  XIV,  98,  134,  136. 
Liider,  271. 
Ludlow,  502. 
Luther,  115. 
Luzzati,  489. 

M 

Mably,  330. 

M'Culloch,  213,  218,  235,  265,  429,  431, 

440. 

Maine,  Sir  Henry  Sumner,  17,  400,  401. 
Malebranche,  139. 
Malthus,  191  f.,  218,  219,  228,  245,  257, 

265,  297,  310,  364,  438,  526. 
Mandeville,  159,  163. 
Mangoldt,  434. 
Manley,  102. 

Marshall,  13,  206  n.,  497,  498  f.,  536. 
Marx,  9  n.,  336,  339,  378,  383  Jf. 
Mataja,  472  n. 
Mayr,  482. 


INDEX 


Mazzola,  492. 

Meitzen,  482,  484. 

Menger,  419  n.,  453,  461  /.,  469  f.,  480 

Mercier,  p.  152. 

Messedaglia,  488  f. 

Meyer,  A.,  482. 

Meyer,  B.  H.,  526,  527. 

Meyer,  R.,  472. 

Miaskowski,  418. 

Michaelis,  482. 

Mill,   James,    233,  235,   265,   345,   400, 

427  n. 
Mill,  John  Stuart,  8,  208,  247,  264,  300, 

345  f-,  429,  442,  536. 
Mirabeau,  152. 
Molinari,  507. 
Montesquieu,  135,  138,  194. 
Montanari,  100,  492. 
More,  330. 
Morelly,  330. 
Moser,  153  n.,  314  n. 
Moses,  25,  26,  30,  31,  33,  34,  38. 
Moufang,  485. 
Miiller,  Adam,  9  n.,  313  f. 
Mun,  91,  93,  101. 

N 

Nasse,  418,  484. 
Nazzani,  489. 
Nebenius,  271,  433  n. 
Necker,  153  n. 
Neil,  527. 

Neumann,  467,  482,  484,  486. 
Neumann-Spallart,  482. 
Newton,  138. 
Neymarck,  507. 
Nicholson,  497,  501  £. 
Nordhoff,  250. 
North,  93,  102,  158. 


^^ 

Obrecht,  115. 

Oncken,  9  n.,  554. 

Oresme,  70. 

Ossa,  115. 

Owen,  211,  333  f.,  336. 

P 

Pantaleoni,  490. 

Pareto,  490. 

Passy,  507. 

Patten,  206  n.,  251,  472,  516,  520,  523  f., 

542. 

Paulus,  56  n.,  61. 
Peel,  Robert,  4  n. 


Perry,  511  n.,  514,  516. 

Petty,  91,  93,  100,  103,  105,  158,  297, 

426,  454. 

Phillipovich,  472,  480,  483,  536. 
Pic.  506. 

Pitt,  William,  4  n.,  184. 
Place,  210. 

Plato,  7,  16,  19,  39 1-,  538. 
Pliny,  the  Elder,  57. 
Pliny,  the  Younger,  58. 
Price,  L.  L.,  554. 
Price,  R.,  194. 
Prince-Smith,  260,  482. 
Proudhon,  338  f. 
Pufendorf,  09,  105,  160. 
Pulteney,  297. 
Purves,  209. 

Q 

Quesnay,  9  n.,  143,  148,  150,  162,  186, 

538. 
Quetelet,  509. 

R 

Rabbeno,  490,  492. 

Rae,  John,  297  f.,  399. 

Rau,  114,  127,  271,  272  f.,  433,  479. 

Ravenstone,  210. 

Raymond,  239,  297. 

Read,  223  n.,  427  n. 

Ricardo,  203,  212  /.,  243,  245,  255,  257, 

265,  270,  272  n.,  285  n.,  289  n.,  346, 

404,  429,  436,  454. 
Ricca-Salerno,  490,  492. 
Richardson,  William,  91  n. 
Ripley,  526. 

Riviere,  M.  de  la.     (See  Mercier.) 
Rodbertus,  379  /.,  485. 
Rogers,  405,  497. 
Rooke,  220  n.,  397. 
Roscher,  126,  316,  401,  410  /.,  479,  484, 

489,  554- 
Rossi,  504. 
Rousseau,  137,  351. 
Rumelin,  9  n. 
Ruskin,  496. 

S 

Sadler,  211. 
Saint-Simon,  332,  348. 
Samter,  483. 
Sartorius,  271. 
Savigny,  409. 
Sax,  472. 

Say,  j.  B.,  205,  251,  274  f.,  285  n.,  352, 
458,  514- 


INDEX 


561 


Say,  L.,  162,  507. 

Schaffle,  418,  484. 

Schanz,  418. 

Schatz,  507. 

Scheel,  von,  484,  554. 

Schelling,  7. 

Schmalz,  114. 

Schmoller,  89,  no,  416  f.,  481,  483,  484, 

486. 

Schonberg,  418,  484. 
Schroeder,  116,  121. 
Schultz-Delitzsch,  482. 
Scotus,  75. 
Scrope,  265. 
Seager,  526. 
Seckendorf,  115. 
Seidler,  472  n. 
Seligman,  517,  522  n.,  526. 
Seneca,  57,  62. 
Senior,  186,  211,  263  f.,  355,  356,  357, 

391,  450,  470. 
Serra,  88. 
Shaftesbury,  138. 
Sidgwick,  407. 
Sismondi,    153  n.,  302  /.,  379,  427  n., 

504,  540. 
Small,  130  n. 
Smart,  465  n.,  497,  503. 
Smith,  Adam,  17,  1 8  n.,  40,  87,  104,  106, 

109,  126,  158  f.,  232,  243,  261,  270, 

279,  297,  3°3,  313,  370,  424.  480,  529. 
Smith,  E.  P.,  249,  51 1  n. 
Socrates,  n,  15,  538. 
Soden,  271. 
Sonnenfels,  127,  193. 
Spence,  153. 
Spencer,  247,  396. 
Stein,  384,  408,  483. 
Steuart,  James,  105  f.,  158,  427  n. 
Stewart,  191,  194. 
Stieda,  482. 
StScker,  487. 
Storch,  427  n. 
Stourm,  507. 
Sully,  19,  134  n. 
Supine,  490,  492,  493. 
Siissmilch,  193. 


Taussig,  443  f.,  527. 
Taylor,  F.  M.,  viii,  526. 
Thomas,  449. 

Thompson,  R.  E.,  250,  511  n. 
Thompson,  W.,  336. 
Thornton,  441  f.,  495. 
2O 


Thiinen,  H.  von,  9  n.,  223  n.,  271,  272, 

279  f-,  366  n.,  464  n.,  479. 
Todt,  485. 
Toniolo,  492. 

Torrens,  u,  220  n.,  223  n.,  225,  233. 
Townsend,  194. 
Toynbee,  404. 
Treitschke,  484  n. 
Tucker,  161. 
Turgot,    143,    144,    147,   148,   157,   153, 

161,  162,  186,  188,  274,  438. 
Twiss,  88. 


U 


Unwin,  497. 


Varro,  60,  66. 

Vauban,  125  n.,  135,  297. 

Veblen,  475  n. 

Verri,  153  n. 

Villeneuve-Bargemont,  312. 

W 

Wagner,  480,  481,  484,  485,  486. 

Walker,  A.,  511  n. 

Walker,  F.  A.,  443,  514,  516. 

Wallace,  A.  R.,  502. 

Wallace,  R.,  194. 

Walras,  A.,  459  n. 

Walras,  L.,  458  f. 

Wayland,  514. 

Webb,  S.,  390,  502. 

Weber,  446. 

West,  220. 

Weyland,  172  n.,  209. 

Whately,  10. 

Whewell,  399. 

Wicksteed,  497. 

Wieser,  463  f.,  469!. 

Willcox,  520,  527. 

Wirth,  260,  482. 

Wolff,  482. 

Wright,  520,  527. 


Xenophon,  48,  49,  297,  538. 

Y 

Young,  194. 

Z 

Zincke,  114. 
Zuckerhandl,  472. 


GENERAL   INDEX 


Absenteeism,  60,  428. 

Absolutism,  6,  10  f.,  139,  188,  235,  260, 

316. 

Abstinence,  265  f.,  357,  393,  47o. 
Agricultural  improvements,   effects    of, 

222. 
Agriculture,  31  f.,  58,  65,  74,  104,  106, 

137,  239;  surplus  and,  141. 
American  Economics,  238  ff.,  511  ff. 
American  Economic  Association,  516  f. 
American    universities,    Economics    at, 

514-516. 

Anarchism,  195,  339. 
Anti-Corn  Law  League,  185,  252. 
Applied  Economics.    (See  Art.) 
Arithmetical  ratio,  196,  198,  200,  487. 
Art,  Science  and,  480;  Economics  as  an, 

264,  273,  405,  480. 
Artisans,  regarded  with  disfavor,  32,  45, 

58. 
Austrian  School,  13,  392,  393,  461  f., 

492,  521,  544. 


B 

Balance  of  trade,  00,  94  f.,  108,  118,  123, 

1 60,  275. 

Bible,  75,  77,  79,  245. 
Biology,  Economics  and,  247,  403,  487, 

498.  (Cf.  Organism.) 
Bourgeois  Socialists,  332. 
Brahmanic  law,  27. 


Cameralism.    (See  Kameralism.) 

Canon  law,  76. 

Capital:  definition  and  function,  122, 
229,  239,  241,  254,  265,  274,  285,  304, 
305,  3i6,  323,  341,  357  f.,  381,  383, 
385,  424,  429  f.,  444,  513,  523,  546  f. ; 
productivity  of,  148,  173,  229,  425 ; 
relation  to  labor,  241  f.,  254  f.,  258, 
273,  285  f.,  305,  340,  425,  43i,  445,  532- 


Caste,  30. 

Catheder  SociaKsten.   (Sec  Socialism,  pro- 
fessorial.) 
Charity,  26,  72. 
Chrematistics,  46,  304. 
Christianity    and    Church,    Economics 

and,  5,  25,  36,  71,  163,  509. 
Civil  law,  Economics  and.     (See  Roman 

law.) 
Classes,  214,  231,  332,  383   (see   Labor 

class) ;  Physiocrats'  three,  145. 
Classical  School,  292  f.,  319  f.,  344,  394  f., 

403,  412,  421  f.,  474,  494  f-,  503>  5°7, 

53of. 

Colonies,  97. 
Colonization,  43,  367. 
Commerce.     (See  Foreign    trade,    Free 

trade,  Regulation.) 
Communism    and   communal   property, 

5,  43  f.,  72,  81,  193,  197-  340,  366. 
Competition,  30,  338,  400,  531. 
Conjuncture,  383. 
Consumers,  81,  188,  530. 
Consumption,  117,  188,  276,  297,  304, 

306,  352,  358,  370,  426,  434,  452,  454, 

524,  543- 
Continuity    in   economic    thought,    24, 

537  f- 

Contract,  55. 
Corn  laws,  96,  97,  184  f. 
Cosmopolitanism,   n,   161,   294,  314  f., 

320,  384,  412. 
Cost,   nature  of,  123,  266,  465  f.     (See 

Value.) 

Credit,  60,  92,  359,  413,  414. 
Crises,  359,  380. 

D 

Deduction.     (See  Method.) 

Demand  and  supply,  106,  144,  170,  264, 

284,  353,  360,  426,  435,  442,  444,  495, 

549- 
Diminishing  returns,  law  of,    200,   207, 

264,  286,  289,  398,  525. 
Distribution,    214;   relative   importance 

in  Economics,    143,    234,    274,    522 ; 


S63 


564 


INDEX 


Carey's  scheme,  241  f. ;  Clark's  scheme, 
522;  Physiocrat ic  scheme,  145;  Ri- 
cardian  scheme,  218  fi. ;  Sismondi's 
scheme,  305  f. 

Division  of  labor,  18,  40,  63  f.,  159,  160, 
164  f.,  290,  317,  322  f. 

Domains,  89,  115. 

Dutch  Economics  in  England,  06  n.,  102. 


Economics:  definition  and  scope,  46, 
52,  106,  122,  124,  264,  276,  304,  351, 
399,  479  f-,  495.  54$;  history  of,  3, 
4  &.;  polity  and,  122;  practical  in- 
fluence, 4,  153,  184,  325,  537;  social 
sciences  and,  5  f.,  34,  248,  409,  546. 

Eisenach  Assembly,  483  f . 

Emigration  and  immigration,  no,  201, 
202,  239  n.,  367  n.,  402. 

Encyclopedists,  the,  8. 

Entrepreneur,   275,  357,  399,  432,  458, 

544- 
Environment,  influence  of,  4,  18  f.,  69, 

74,  88,  92,  98,  114,  134,  136  ff.,    192, 

214,  318,  350,  372,  409,  432,  488,  511 

f.,  5i6,  536  f. 
Epicureans,  8. 
Epigones,  13,  482. 
Ethics  and  Economics,  16,  52,  57,  83,  99, 

104,  234,  277,  289,  304,  307,  418,  455, 

484,  522,  528,  531,  539  f-,  542. 
Evolution,  Economics  and,  343,  396,  400, 

408. 
Exchange,  place  of,  in  Economics,  274, 

277,  352,  522. 
Exploitation  of    labor   class,   173,  310, 

333,  336,  340,  379,  386. 


Fatalism,  35,  36. 

Feudalism,  70,  88. 

Final  utility.     (See  Marginal  utility.) 

Finance,  public,  125,  149,  177,  238,  492; 

economic  thought  and,  19,  134  f.,  143. 
Foreign   trade,    268,    359    f. ;     attitude 

toward,  41,  49,  63,  90,  93,   160,  320; 

regulation  of,  42,  63,  80,  95,  123,  179, 

313  ff.     (See  Protection.) 
Free  trade,  123,  140,  151,  161,  162,  252, 

260,  271. 

French  Economics,  274  ff.,  503  f.,  541. 
French  Revolution,  138,  164,  314,  330, 

331- 


Friction  in  Economics,  205,  309,  423. 
Fungible  thing*,  7g. 


General  Economics,  479  f .,  546. 

Geometrical  ratio,  196,  246,  486. 

German  Economics,  100,  270  f.,  479  f., 
518;  Germanic  contributions:  early 
Germans,  70;  economists,  273;  in- 
fluence, 489  f.,  504,  518  f. ;  Kameral- 
ism  and,  130,  480;  German  universi- 
ties, Economics  at,  274,  480. 

Gilds,  81,  98,  115,  116,  121. 

Gluts,  205.     (See  Overproduction.) 

Goods,  different   orders  of,  451  f.,  462. 

Government,  functions  of,  79,  95  ff., 
139,  177,  257,  3io,  332,  338,  369  f-, 
456  n.,  484,  517,  524.  (See  State,  im- 
portance of.) 

Greek  Economics,  5,  15,  16,  39  f. 

Gresham's  Law,  118. 

H 

Harmony  of  interests,  140  f.,  161,  190, 

242,  253,  256. 
Hebrews,  24  ff.,  52. 
Hedonism,  472,  531,  545. 
Hindu  economic  thought,  24  f.,  53. 
Historical  method,  n,  160,  208,  244,  311, 

321,  328,  395  f.,  400,  410  f.,  499. 

(See  Relativity.) 
Historical  School,  408  f.,  483,  496,  505, 

516. 
History,    economic    interpretation     of, 

39,  385,  49i. 
Humanism,  69. 


Idealism  in  Economics,  7,  35,  83,  247, 

371,  415  n.,  473,  533,  540. 
Immaterial     factors     and     immaterial 

wealth,   241   n.,   273,   276,    277,    316, 

323  f-  363,  549- 
Improvements,  effects  of,    222,  223  n., 

226. 

Imputation,  valuation  by,  464,  469  f. 
Increasing  returns,  223,  264,  267  f.,  526, 

542. 
Independent  domestic  economy,  18,  79, 

109. 
Individual  vs.  social  interests,  109,  125, 

129,    161,  170  f.,  239,  298,  310,  391, 

418,  428. 


INDEX 


565 


Individualism  in  Economics,  7,  8,  17,  35, 
43,  71,  83,  140,   187,  294,  315,  370, 

383,  S°4- 

Induction  in  Economics.     (See  Method.) 
Industrial    Revolution,    the,    105,    106, 

107,  192,  214,  235,  330,  400,  438. 
Inheritance,  42,  333. 
Interest  theory,  history  of,   5,  26  f.,  48, 

57,  101  f.,  147  f.,  160, 161,  173,  229  /., 

242,    255  f.,  265,  286,  357,  362,  404, 

469  f-,  5*3,  S25,  547- 
International     trade.        (See     Foreign 

trade.) 

International  value,  359  f. 
Interventionists,  506. 
Italian  Economics,  100,  153  n.,  487  f. 


Jurisprudence   and    Economics,    55    ff., 

114,  383,  409,  411,  481. 
Just  price,  28,  29  f.,  61,  76,  80,  107. 
Justice,    Economics    and    distributive, 

342  f.,  366,  370,  391,  484. 


Kameralism,  13,  113  f.,  270,  273,  538. 
Katheder  Socialist™.     (See  Socialism,  pro- 
fessorial.) 


Labor  (see  also  Wages) :  labor  class 
and  economic  thought,  16,  172,  180, 
214,  285,  331,  365,  404.  409,  445.  456 
n.,  485,  495,  506,  518;  dignity  of 
labor,  72,  80;  factor  of  production, 
too,  160,  164,  278,  305,  378;  painful- 
ness  of  labor,  335. 

Laisser  faire,  4,  140,  151,  156,  163,  177, 
276,  278,  299,  369,  526,  529. 

Land  (see  Rent) :  as  factor  in  pro- 
duction, 103  f.,  155  f.,  175,  239,  244, 
283  f.,  430,  512;  as  social  basis,  33, 
491 ;  relation  to  man,  7,  8,  241,  351 ; 
value  of,  244,  255,  259. 

Land  banks,  97,  104. 

Land  nationalization,  368,  502.  (See 
Socialism,  agrarian.) 

Landlords'  interests,  171  n.,  175,  204,  222, 

255,  3SS- 
Latifundia,  60. 
Laws,  nature  of  economic,  398,  400,  402, 

411,  414,  415,  417,  419,  499- 
Liberalists,  503,  510,  531. 


M 

Machinery,  309. 

Manchester  School,  185,  260,  405,  482, 

503- 

Margin  of  cultivation,  219,  227,  229, 
283  ff.  (see  Rent,  and  Marginal  pro- 
ductivity); extensive,  219  f. ;  inten- 
sive, 219  f.,  222,  287. 

Marginal  cost,  169. 

Marginal  productivity,  286  f.,  512,  522, 

525- 

Marginal  utility,  393,  447,  448  ff.,  464, 
468,  473,  486,  493,  499,  536,  544, 
549- 

Materialism  in  economic  thought,  7  f., 
36,  83,  180  f.,  187,  233,  293,  371,  384 
f.,  473- 

Mathematical  Economics.   (See  Method.) 

Measure  of  value.     (See  Value.) 

Medieval  Economics,  5,  70  ff. 

Mercantilism,  13,  87  ff. 

Metaphysical  stage,  Comte's,  12  f. 

Method,  9  ff.,  413  f.,  417,  481,  545;  ab- 
stract, 12,  183,  228,  234,  280,  288, 
395  f.,  400,  545;  concrete  deductive, 
373;  deductive,  10,  183,  234,  248, 
264,  280,  373,  401,  403,  481,  495;  in- 
ductive, 10,  275,  300,  403,  416,  419, 
481;  mathematical,  280,  451,  457, 
459,  481 ;  statistical,  9,  400,  417. 

Middle  Ages,  significance  of,  5,  24,  69  f ., 
82  f.,  104,  316. 

Monasteries,  80. 

Money:  definition  and  nature,  56  f., 
97,  119,  160;  origin  and  use  of,  48, 
56  f.,  78;  value  or  purchasing  power 
of,  77,  80,  334,  525;  labor  currency, 
334,  34i,  381 ;  foreign  trade  and,  91, 
93 ;  regulation  of  exports  of,  118. 

Monopoly,  117,  175,  204,  266,  355,  524, 
526;  in  medieval  towns,  80. 

Mosaic  law,  15,  26,  32,  34,  38,  77. 

N 

National  lines,  significance  of,  37,  108, 
271,  321,  409,  518. 

Nationalists,  the,  294,  313  ff.,  533. 

Natural  prices,  rates,  etc.,  13,  46,  49, 
147,  149,  170,  226,  286,  522. 

Natural  science,  progress  in,  and  eco- 
nomic thought,  138,  139,  396,  447,  496. 

Nature:  bounty  of,  47,  141,  204,  223  f. ; 
law  and  philosophy  of,  12,  55,  75, 
138  ff.,  163,  183,  234. 


INDEX 


Navigation  Acts,  97,  107,  109. 
Negativism,  in  economic  thought,  155, 

187,  402,  410. 
Neo-Maithusianism,  an. 
Non-competing  groups,  495. 


Occupations,  attitudes  towards  the  vari- 
ous, 49,  58,  71,  74,  93,  i°4- 

Opportunism,  182,  300,  502. 

Optimism,  in  Economics,  141,  179,  100, 
242,  261,  290,  406,  475  n.,  504,  524, 
540. 

Order  of  cultivation,  223,  243. 

Organism,  society  as  an,  315,  328,  418, 
491,  498,  521. 

Oriental  economic  thought,  5,  23  Jf., 
52. 

Overproduction,  204,  275,  297,  301,  307, 
359,  38o. 


Parsimony,  and  frugality,  96,  101,  295, 

297,  425- 
Personality  of  man,  35,  56,  71,  73,  99, 

338. 
Pessimism,   in   economic   thought,   172, 

190,  223,  232,  530,  540. 
Philosophy  and  Economics,  6  f.,  57,  138, 

180,  371,  411,  472,  544  f.     (See  also 

Idealism  and  Materialism.) 
Physiocrats,  87,  104,  106,  133  f.,  159, 

162,  164,  238  n.,  270,  275,  297,  301, 

382,  427  n.,  434,  529. 
"Political  Arithmetic,"  87. 
Politics,  Economics  and,  17,  83, 122, 131, 

411.     (Cf.  Jurisprudence.) 
Poor,  the,  in  economic  thought,  26,  33, 

79,  95  f  • 

Poor  laws,  193,  263. 
Population,  43,  79,  95,  96,  103,  106,  115, 

123, 125, 129,  148, 161,  172, 188, 193  Jf., 

228,  245  f.,  257,  264,  309,  356,  361, 

364  Jf.,  488,  526. 
Prices,  77,  80,  81,  89,  90,  192,  361,  405. 

(Cf.  Money,  value  of.) 
Production,   141 ;    factors   of,    103,    135 

(see  Labor  and    Land) ;    relative   im- 
portance in  Economics,  143,  188,  274, 

304- 
Productive  and  non-productive  classes, 

104  f.,  141,  145, 153,  157,  165,  205,  239, 

272,  273. 


Produit  net,  141,  144,  301. 

Profits,  174,  334,  357,  362,  432  f.,  542, 

547  f- 
Property,  private:    basis  of,   140,  339; 

economic   thought   and,  55,  71,  332, 

334,  339,  342,  364,  487- 
Protection,  63,  80,  96,  116,  117,  iao,  179, 

239.  289,  314  f.,  321  /.,  327    f.,  502, 

505,  513- 

Public  finance.     (See  Finance.) 
Pure    Economics,    480,  546.    (See    also 

Economics.) 

Q 

Quietism,  59. 

R 

Reformation,  20,  69. 
Regalia,  89,  115,  126  f. 
Regulation :  of  everyday  life,  25,  35,  42 ; 

of  industry  and  commerce,  29,  42,  62, 

81,  97,  nof.,  123,  179,  239. 
Relativity,  6,  161,  404,  409,  413. 
Religion,    economic    thought    and,    34, 

95  f-,  138,  316,  485.     (See  Bible,  and 

Theology.) 
Renaissance,  20. 
Rent,  141,  157,  175,  204,  210,  242,  255, 

267,  282  f.,  355,  381  f-,  397,  431,  498, 

500,  523. 

Representative  firm,  500. 
Re  rustics,  Scriptores  de,  60,  65  f. 
Residual  claimant,  230,  548. 
Risk,  174,  230,  433,  525,  548. 
Roman  economic  thought,  54  Jf. 
Roman  law,  71,  128,  341,  538. 
Romanticism,  313. 


Saint-Simonians,  132. 

Savings  and  capital,  393,  425;  and  pro- 
ductive labor,  171,  172,  306,  359,  425, 
440  f .  (Cf.  Capital,  relation  to  labor.) 

Scarcity  and  value,  143,  215,  264,  352, 
355,  459-  (Cf.  Demand  and  supply). 

Scholasticism,  74  f.,  538. 

Self-interest,  45,  159,  161,  163,  178,  402, 
418. 

Single  tax,  135,  149. 

Slavery,  60,  72. 

Social  viewpoint  in  Economics,  7,  9,  41, 
170,  298  f .,  343,  544. 

Socialism:  agrarian,  148  n.,  392;  Chris- 
tian, 38,  485,  502 ;  professorial,  483  f., 
497,  506;  revisionistic,  300;  State, 


INDEX 


567 


377.  378;  relation  to  Economics: 
reaction  upon  Economics,  259, 
342,  390  ff.,  446;  misinterpretation 
of  economists,  172  f.,  390;  history  of 
Socialistic  ideas,  38,  193,  208,  274,  294, 
3io,  330  ff.,  348,  363,  368,  377  S;  492, 
506,  520,  530,  533,  540. 

Society,  concept  of,  37,  298,  299;  and 
value,  462,  468,  473,  522. 

Sociology,  5. 

Solidariti,  506. 

Sophists,  8. 

Stages,  Industrial,  321,  343,  380,  413. 

State,  Origin  of,  39  f. ;  Importance  of, 
41,  79,  89,  247,  273,  315,  391,  505,  517. 

Static  vs.  dynamic,  498,  523,  548. 

Stationary  state,  190,  511,  523,  540. 

Statistics,  9  n.,  88,  193  n.,  236,  456  n., 
480,  481,  482,  508,  509,  520. 

Stoics,  7,  56,  59. 

Subjective  viewpoint,  248,  268,  273,  424, 
435,  446,  463,  467  f-,  472,  483,  543,  547- 

Subsistence,  minimum  of,  202,  227.  (See 
Wages.) 

Supply.     (See  Demand  and  supply.) 

Surplus,  consumers',  500,  543. 

Surplus  value,  140  f.,  204,  232,  267,  285  f., 
336,  386,  500  f.,  541. 


Tableau  Eeonomique,  145  ff. 

Tariffs.  (See  Protection,  and  Regula- 
tion.) 

Taxation,  79,  105,  116, 125,  127, 149,  161, 
176,  268,  283,  501. 

Technics  and  Economics,  114,  115,  129. 

Theological  stage,  Comte's,  12,  23. 

Theology  and  Economics,  13,  74  ff.,  163, 
245,  200. 

Time,  interest  and,  265  f.,  470,  525. 

Towns  and  economic  thought,  80. 

Treasure,  importance  of,  91  f.,  107,  118. 

U 

Unearned  increment,  368,  392,  542. 
United  States.     (See  America.) 
Universities   and   Economics,    114,    121, 

496,  SOS,  SIS- 
Usury,  25  f.,  50,  57,  58,  74,  77  f;  101. 


Utilitarianism,  182,  233,  363,  371,  402, 
451,  531- 

Utility,  7,  145,  160,  241,  253  f.,  266,  358, 
371, 381, 455,  456,  543,  549  (see  Value)  ; 
diminishing  utility,  266, 447, 451 ;  mar- 
ginal (see  Marginal  utility). 

Utopists,  331  ff. 


Value:  cost  and,  62,  76,  99  f.,  145,  166, 
f-,  215,  353,  464  ff.,  469,  525,  543; 
exchange  value,  99,  143,  166,  215,  315, 
323,  468;  in  international  trade,  360; 
labor-cost  theory,  100,  160,  162,  167  f., 
215  f.,  236,  241,  254,  275,  324,  340,  386, 
435,  457,  467;  measure  of,  48,  100, 
167  f.,  205,  218,  426,  464;  service 
theory,  254,  278;  subjective,  47,  100, 
268;  utility  and,  62,  77,  144,  160,  161, 
166,  215,  236,  253,  275,  388,  425,  435, 
448  ff.,  457,  461  ff.,  472,  486,  549,  521  f. 

Value,  history  of  theory  of:  Austrian 
School,  461  ff . ;  Bastiat,  253,  260; 
Cairnes,  492 ;  Carey,  241 ;  Ger- 
man, recent,  485  f. ;  Greek,  47; 
Jevons,  454  f. ;  Marx,  386  f. ;  Mer- 
cantilists, 98  ff.;  Mill,  J.  S.,  352  f.; 
Physiocrats,  144  f. ;  Ricardo,  215  ff. ; 
Roman,  61  f. ;  Say,  275;  Scholastics, 
76;  Senior,  264;  Smith,  Adam, 
1 66  ff.;  Thiinen,  284. 

Verein  fur  Sozial  Polilik,  416,  483. 

W 

Wages,  103,  147,  171,  202,  225  ff.,  241  f., 
267,  285,  471,  513;  subsistence  and, 
147,  171,  226,  379,  383- 

Wages-fund,  228,  236,  267,  356,  381,  392, 
425,  431,  438,  512. 

Wants,  importance  of,  39  f.,  159,  253, 
338,  426,  453,  454,  462. 

Warfare,  changes  in  method  of,  and 
Economics,  90. 

Wealth :  attitude  towards,  35  f.,  50,  58, 
74,  91;  inequalities  in,  51,  135,  334, 
361,  365,  379  i-,  485;  nature  of,  119, 
125,  134,  135,  143,  160,  239,  276,  296, 
298,  304,  458,  474,  532,  549;  rules  for 
national  gain  in,  95,  120,  124. 


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'3 


Date  Due 


APR  2 


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JUN      9  1962 


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JAN  22  1963 


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19R9  4 


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Library  Bureau  Cat.  No.  1137 


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